Last Updated on 12/08/2024 by wccexam Desk
As the name of Hindenburg comes into the headlines, the discussion of another thing intensifies, which is called ‘short selling’, yes, through this the American firm Hindenburg earns a lot. Although, Short Selling is a kind of trading or investment strategy, but by making it a weapon, companies like Hindenburg print billions of rupees. The special thing is that the whole game of short selling is played with the shares borrowed by the short seller. Let us know about the whole game of short selling step-by-step…
Last year Hindenburg earned crores of rupees
First of all, let us tell you that Nathan Anderson’s Hindenburg Research is an investment firm as well as a short seller company. As its name makes it clear that it earns through short selling. If we look at the profile of Hindenburg company, it is an activist short seller and this is also an important source of its earnings of billions of rupees. According to a report, when Hindenburg released its report on Adani Group in January last year, on the one hand there was a tsunami in Adani Stocks, but on the other hand Hindenburg had printed about 4 million dollars or about Rs 33.58 crore.
However, this time there is no significant impact on Adani’s shares. It is worth noting that the new report released by Hindenburg regarding SEBI is also somehow connected to the huge earnings made by shorting shares last year. Market regulator SEBI had issued a show cause notice to Hindenburg regarding the same earnings. Hindenburg did not give an official reply to that notice, but now it has released a report regarding SEBI.
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Understand earning from short selling in simple language
Short Selling is actually a strategy in which you sell a security that you do not have. Rather, this whole game is played through borrowed shares. The special thing in this is that those who trade in short selling earn money when the price of the stock falls instead of rising.
To explain it through an example, if a short seller buys the shares of a company with the hope that a stock of Rs 200 will fall to Rs 100 in the future, then he borrows the shares of this company from other brokers in the same hope. After doing this, the short seller sells these borrowed shares to other investors who are ready to buy it at the price of Rs 200. When, as expected, the company’s share falls to Rs 100, the short seller buys the shares from the same investors. During the fall, he buys the shares at the price of Rs 100 and returns it to the person from whom he had borrowed it. Accordingly, he gets a huge profit of Rs 100 per share. Under this strategy, Hindenburg earns by shorting companies.
Apart from the benefits, the risk in this game is also high
As mentioned, money is earned by short selling shares. But along with earning huge profits, this method is also risky and if the bet backfires, the short seller has to bear huge losses. This method is considered bad for the health of the market. Actually, if investors lose money by investing in this method, then there are chances of them distancing themselves from the market, which also affects market growth.
Source (PTI) (NDTV) (HINDUSTANTIMES)