The stock market continues to grow year by year. The top 500 companies in the world's stock exchange, the S&P500, was valued at only 10 trillion USD back in 2010, but now it has tripled in value.
Various companies have grown over the years, especially disruptive technology stocks that continue to grow. One example is APPLE, which reached a market capitalization of 2 trillion USD in 2020. Additionally, technology companies in renewable energy and automotive such as Tesla, which is currently the most valuable automotive company, continue to grow and receive orders compared to other car manufacturers. Its market capitalization once exceeded 800 billion USD, leaving its competitors behind.
However, there are some companies that go bankrupt. For example, during the financial crisis in 2008, some companies went bankrupt, not because they were small companies, even those that had been in operation for decades. One of them was Lehmann Brothers, which had difficulty liquidating its assets. Problems in obtaining liquidity put the company in big trouble. Even before going bankrupt, Lehmann Brothers had assets worth 680 billion USD.
Indeed, no one knows the certainty of the future. Companies that use high leverage may quickly scale up their business models but have a higher risk than competitors who use lower leverage. However, behind the collapse of companies listed on the stock exchange, there is short-selling that makes them collapse faster.
What In Mars a Short-Selling Is ?
Lately, there are many ways to profit from the capital market. It can be done through buying Bonds and Stocks. However, besides that, there is something called derivatives.
Derivatives are derivative assets that usually take the form of contracts against their underlying assets. Examples of these contracts are futures and options, both of which are quite popular lately because they are profitable for brokers who handle the transactions and very few users who actually make a profit.
Short selling is included in the derivative category. Short selling works by taking advantage of a stock's price decline. So the way it works is to sell stocks or commodities that we do not currently own in the hope of buying them at a cheaper price before the contract expires.
Short selling is not widely used in Indonesia, but many foreign companies operating in Indonesia use short selling, with contract models that are even worse. One example is Binomo, which has recently trapped various groups. Binomo trades Option contracts, which fall into the derivative category.
Although there is no law that regulates short selling yet, it is hoped that the government will regulate it soon. Therefore, the most influential thing at the moment is to prevent the public from engaging in abnormal trading contracts as has been implemented in the Indonesia Stock Exchange.
Its Contract Have A Limits
Short-selling is a contract against a stock or commodity that we do not yet own with the hope that we will buy it before the contract expires. However, unfortunately, we often lose time before the asset price goes down.
Some trading brokers even offer very short contract periods. Some even have contract options that last only a few seconds, which is actually quite bizarre if you think about it.
How could a stock move up or down in a matter of seconds? Even financial reports from an issuer are issued once every 3 months, making it difficult to analyze where the needle will move in just seconds.
Nevertheless, some brokers provide a reasonable expiration time for the contract, as there are no limits on how long a contract can expire. However, some brokers take advantage of public uncertainty by offering very short-term contracts to generate more profit. Short contracts will make people perform more trades than long ones, so the broker can gain more profit.
Make Stock Crashing
We know that short selling enables contract makers to profit if a commodity or stock experiences a decline in price. This will definitely affect market demand for a stock or commodity.
The more people engage in short selling, the stock will tend to fall. We know that market movement is influenced by the amount of demand for a product, and if many people make contracts that want to lower the price, then a stock will tend to experience a decline in price.
This will definitely harm traditional investors who only profit when the stock price rises. A decrease in stock prices will certainly make investors anxious and disrupt their sleep schedule.
However, very few short sellers become rich. Basically, they challenge all public companies to experience a decline in performance while there are trillions of dollars worth of forces working to improve their financial performance. So in theory, short sellers are challenging the wrong enemy.
Pausing Civilization From Advancing
We know that Short-Selling has an impact on causing stocks to decline. Each contract made in a short amount of time will cause the stock to drop due to market demand wanting the stock price to decrease.
The decrease in stock prices will certainly harm the future of human civilization. We know that the stock market is the best place for companies to obtain funding to improve the quality of their products/services.
If the stock market experiences negative performance, there will be many employees who will be laid off. In addition, the quality of products and the distribution of work areas will also decrease.
For example, in healthcare companies that provide products/services, if healthcare stocks decline, the quality of service will also decrease. However, if healthcare stocks continue to rise, healthcare will expand its service area to accelerate the distribution of quality health services to the community.
