SHORT-SELLING OF EQUITIES. ADVANTAGES, DISADVANTAGES AND USING OF THIS INVESTMENT TECHNIQUE ON THE WARSAW STOCK EXCHANGE

Abstract

The main aim of this article is to present short-selling as an investment technique, that enables investors to make profits on drops of prices of securities. Two types of short-selling were characterized: covered short-selling and naked short-selling. The article presents advantages of this investment technique, not only for investors, but also for functioning of the equity and derivatives markets. Disadvantages of short-selling were also presented including, among other things, market abuse and short squeeze. It was noted that the negative impact of short-selling may be partially limited by applying proper regulations (like the up-tick rule). Problems concerning concluding short-selling transactions on the Warsaw Stock Exchange were also analysed, emphasizing the role of legal factors in development of this market.