Why do we allow Shorts and Longs?

Feel free to educate me as I never have participated or even cared to take part in these gambling plays.

I think it would be much better for the space and projects to just be able to grow organically with out having the sell and buy pressure, it’s like this gives reason for markets to be manipulated by the whales and instantiations. I suppose they could just buy and dump and repeat.

I know I’m missing information or what role this actually brings to benefit the market and I just wanted hear it from the Reddit family that takes part in this or doesn’t and get some opinions and views on why’s it great and healthy or why it’s not. I’m more interested in why it is healthy for the markets because I’m on the other side obviously.

Like I said I am very ignorant to this topic, I know people make alot of money and people lose alot of money doing this.

Just looking for some reason to why all this is allowed in the markets crypto/stocks.

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27 thoughts on “Why do we allow Shorts and Longs?”

  1. It is even allowed on chain, you are talking as if this is a feature that is only allowed on exchanges, that enables malicious actors.

    You could put USDC borrow AAVE, swap it for USDC. that’s a short position.

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  2. Look at the stock market, if there where no shorts the prices would go up to unrealistic numbers. Shorting keeps these companies in check with there fundamentals, at least that’s what they want you to believe. Shorting has been happening for hundreds of years and as long a something can be borrowed it can be shorted, do you know it’s illegal to short onions in Chicago?

    Crypto is another beast which is very volatile which means shorts take a very large risk if the price does not go their way. I’ve always suspected this is why crypto probably gets shorted less.

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  3. 2017 first allowed futures on Bitcoin were an attack from SEC. They literally said they crash Bitcoin with futures. Bitcoin went 2000% up 2017 so market manipulators start selling Bitcoin and shorting at same time. To add to this we know 2021 half of all Crypto volume happend on the future markets. This stops the money go into Bitcoin which stops the market to grow.

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  4. First, please don’t believe all the conspiracy theorists blaming every single thing on manipulation. Normal reactions to market conditions just happen sometimes. Manipulation definitely happens but you’re not gonna get better at understanding it and getting ahead of it if you can’t distinguish between it and normal market savvy.

    Also, crypto is supposed to be secure and freeing. But it’s also emerging tech. Many will fail. Some to crime and some to incompetence and some to better projects. It sucks, but we’ll be better for understanding this and adapting.

    If normal tools alone can bring it down, it wasn’t that strong.

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  5. Because there’s no way to ban it and someone would eventually offer them even if no one was currently because offering these derivatives is a small but guaeanteed profit for the person offering them.

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  6. We? Allow?? Yes, because ‘we’ (whoever the fuck that is) have 100% control over the actions of every single person in the world and can decide whether or not they do what they want to…..

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  7. It isn’t all gambling. Derivatives can be used responsibly to hedge against volatility. Say you’re a BTC miner who wants to have stable returns despite what happens with BTC price. Derivatives help. Same with an investor who wants to hedge against a price reduction. It can also be more tax efficient to use derivatives vs buying/selling your whole stack of BTC

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  8. It’s annoying that this is allowed. A small dip quickly become a major dip and vice versa. The problem is that exchanges manipulate the market to make money off of leverage traders

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  9. Because it improves the “truth” of a price.

    A price means how much people want something vs how much is available, compared to other things traded with the same currency. High price means more people wanting than supply, lower price means more supply than people want (the price is almost a “ratio” 0 and infinity being the extreme cases).

    Shorts and longs, add another layer of information, still the same thing supply/demand but in the future, this adds another layer of information, if you were going to buy something and knew that was heavily shorted, you at least would look more into it to understand why.

    The problem is that short/long can become a self fulfilling prophecy, that’s why in normal markets is regulated (doesn’t stop people breaking the law as in the GME case). In the crypto space is way more chaotic and becomes one more way to manipulate the market.

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    TL;DR: It helps giving information about how people feel about the future of that asset, but without all the regulations of a normal market, it can be used as a weapon to manipulate the market.

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  10. I’m the company, you “borrow” from me.
    You can’t return the extra with your margin, so I’ll just take your money along = LIQUIDATION/MARGIN CALL

    Most of the retail traders loses all the time, therefore they can profit from it

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  11. You can’t really stop it from happening is why. There is always going to be the ability to leverage. All it requires is someone to own something and be willing to lend it out. Then someone else can borrow it. This is what makes a short or long possible in reality.

    All futures and options are really are an agreement between 2 people. The fact that it’s enforceable with instant finality is really the thing that makes it dangerous. But then it wouldn’t have the ridiculous profit potential that draws people in to begin with.

    Let’s say I lend you a bitcoin at the current price and you go and sell that bitcoin, and agree to pay it back in 5 days with interest. If you can’t come up with that bitcoin for cheaper than what you bought it for, you’re losing money with the interest you pay, but this speculation is possible no matter what.

    Depending on our agreement, it shapes the type of trades you can do. If I want 1 btc back, with interest paid on top of that, we might use the cost basis of the price of bitcoin on that day. Once you accept the bitcoin, you’re paying interest, so I don’t really care what happens at this point, I am guaranteed to make money, provided nothing happens to my bitcoin. The way you pay back your loan changes drastically depending on the price of bitcoin.

    Now, let’s say instead of lending you bitcoin, I lent you in USDC instead. You may have to pay a higher interest rate to borrow USDC, but now you don’t have to worry about the price of bitcoin changing in relation to whatever you needed the money for.

    So as you can see, as long as lending can take place, you can short or long. How far you’re capable of taking it depends entirely on how much collateral you have.

    Options and futures are really just an agreement between two people. Much like the above example, at its core, it cannot be stopped.

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  12. Why not? Gambling is an infsutry where money goes in and out, for the enterprises or indsutry here, it is money IN.

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