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Comment by delaaxe | Hacker News Reader

Naked short selling is illegal

That is not naked short selling. Naked short selling is when you sell a stock short without first borrowing it.

The parent to your comment describes someone buying a stock from someone who sold it short, and turning around and it selling it short themselves. This happens organically and is not "naked."

Beware the incredible amount of false and misleading information about this situation online. Things catch on in the zeitgeist and don't really get fact checked.

Ok thanks I think I got your point but you probably worded it wrong. Some can’t buy a stock and then “short sell” it, right? He just sold it

Right. But you can buy a stock (without knowing it was a borrowed share in a short sale), and then lend it to someone else (who intends to sell, it, thus creating another short sale).

So to unwind this, the one existing share has to get bought (by someone who short-sold it), and returned (to the owner who lent it out), twice.

not for hedge funds.

yes for hedge funds. some market-making entities are legitimately allowed to be short without borrowing, but is it absolutely not just any random hedge fund!

Isn't it the opposite of what parent is saying, that market makers are allowed to do naked short selling for "liquidity purposes" but hedge funds I'm not so sure

>Isn't it the opposite of what parent is saying

Yes. vpribish is saying that chovybizzass is wrong.

What??

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