this post was submitted on 30 May 2024
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Isn't shorting theoretically able to put you in infinite debt?
Theoretically, yes. A short is sorta a negative stock. When you hold a normal stock, the price can never go below zero. But when you hold a negative stock, there’s no maximum value that stock could rise to.
I think you would be margin called and just have astronomical but not infinite debt.
Infinite and astronomical are used interchangeably here. Since you have to return a share to the person you borrowed it from, if you borrowed 1000 shares at $5 and sold them to make 5k, if the price jumps to something like $350 like gamestop, it would cost you $350,000 to cover them.
Making 5k to lose 350k might as well be an infinite loss ot that investor, even though its technically a "smallish" sum. At that scale, it would destroy most people.
You can also pay to keep a short going generally and try to wait out the madness, but you have to stay solvent to do it. The very stupid and very surprising "diamond handing" apes caused some hedge fund issues, although I think most just shrugged into other financial instruments.