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Welcome to Walter Moore Canada's Blog. These comments are strictly opinion. You can disagree!

Thursday, February 10, 2011

The biggest stock market screw over

So you thought Bernie with his $50 Billion dollar scam was taking advatange of poor investors? Have a look at just one of the things brokers can do to investors LEGALLY!

How many of you know what "shorting" is and how is it allowed? Read below and you will get upset over how this works and even madder that it is even allowed.

"Shorting" a stock is selling a stock that you don't own anticipating the stock will go down so you can buy it cheaper later... but how can you sell a stock you don't own... That is illegal isn't it???? Well technically you can't sell stocks you do not own, that is called naked short selling and that is illegal. So how do the brokers do it? THEY LOAN THE STOCK THEIR CUSTOMERS BOUGHT!!!! For a fee of course.

So here is how it works... The brokers charge you fees to buy a stock for you and they hold the actual stock certificates. The broker then "loans" those stock(for a fee of course) to someone else who wants to short the stock. The broker is making money off BOTH customers and the broker has no risk!
 So now you gotta ask... What the F*(&*&**^!!!!! .... Your broker is actually using the stock you bought against you. Allowing others to "borrow" your stock to short in effect drives the price of the stock DOWN! That is totally against your best interests. 

Are you a littl upset now? You should be. What can you do? If you purchase indiviual stock you can request the actual certificates which ensures the broker can't loan your shares. This unfortunately creates headaches for you to manage your stock certificates. When it comes to mutual funds you can't get the individual stock certificates so you have no control.

If this ticks you off start asking questions of your brokers. The reason I got on this rant is one of my mutal funds is applying to be able to do this for the entire fund of stocks. If you are wondering which company.... AGF is about to do it on all their funds.

Supporters of shorting will tell you it stops irrational exhuberance of stock going through the roof. However, they don't mention that shorting causes stocks to drop much faster because it is almost a self fullfilling prophecy. Shorting can easily take a company with a little difficulty and wipe it out. Look at what was going on with AIG nd CITI during the crash. There was huge volumes of shorts almost causing both these companies to collapse. 


1 comment:

  1. Maybe brokers should need certificate holders' authorization to use it for shorting. That would create a fun system where they would start offering incentives to share holders for allowing them to use their stocks for shorting.. and suddenly some risk is assumed by the broker.