This may be a dumb question, but...

Say you make money trading ES. Does that money only come from other ES or SP traders? Or can the money also come from some guy who holds a stock that is in the S&P500? I think it can, right?

ROCK

 

I have a similar question. When a trader makes money on a short term equity trade, where does that money most often come from? Does it come from another trader that lost money? Does it come from a big institutional buyer or perhaps from an individual investor?

Are we competing against other traders for the same profits or are we competing against someone else?

 

With futures there have to be as many shorts as longs. So for every profit there is a loss, that's why they call it a zero sum game(ok, with commish it's a negative sum game). It's not necessarily the person who bought your contract that is offsetting your loss. After all, they night have been covering a short.

With stocks it's different, as there are many more longs than shorts. You buy a stock, it goes up, you sell it. The person you bought it from may have an opportunity loss if they were long, or if they sold it short, a real loss.

Now what I've never understood is this. I sell a stock short. The person who bought it is long. They have the right to vote the stock. But so does the real owner from whom it was borrowed. So how can that work?

 

Your Grandmother gives you $ 10,000 for Graduation to open a trading account.

You make your first winning trade by shorting the NQ .
The loser on the other side, is a trader that bought the index as one leg of a basket arb. He is buying the index and simultanously shorting a basket of stocks that make up the NDX. The person buying one of the stocks in the basket is the trader for Goldman who is buying to hedge an instutional order that was just executed on the desk. The institutional customer order was Fidelity Investments, who sold to offset yesterday's mutual fund redemptions. One of the customers liquidatiing her mutual funds was your Grandmother, to give you the money to open your trading account.

 

That is a very interesting question. Any answers out there?

 

the person from whom you borrowed the stock loses their voting privileges. Ordinarily this wouldn't be a problem because most people don't vote on their 100 shares of XYZ. However, if this is in fact the case then I think it's a BIG problem because 99% of the time the person doing the lending doesn't know that they've agreed to be a lender of stock - it's in the small print.

Can someone confirm whether I'm right?

 

hmmmm, i always thought you had to be the shareholder of record in order to vote.

 

things that make you go hmmmmm.......The original long stock is held under streetname by the broker.( are they the real owners at this point?? ) If so this would lead me to believe that the original owner has given up his voting rights during the lending period of stock which he has given the broker permission to lend thru his margin or account app. IM just guessing though...peace

 

As far as I can see, there are three options:

1. Both owners get to vote (the original owner, and the one who bought the short).

2. The short works some kinda magic, or buys votes, or arranges for votes that cancel eachother out, or something else that is mighty weird.

3. The original owner loses his voting priviledge due to the loan of his stock.

I gotta go with #3, along with the previous posters. Bear in mind that I have no idea what the real rule is.

I've got another question about shorts. Suppose some broker has accounts A, B and C. A and B own "borrowable" MSFT, say 1000 shares each. Then C shorts 1000 MSFT, and through whatever process, it comes from the account of A.

A talks to C, and A decides he thinks it's going down as well, so he dumps it. Does the broker borrow from B to sell A's shares so C stays short? Or does C get nailed? I presume it's the former, but don't know for sure. . .

 

I don't know the answer, but I've never been notified that I couldn't vote stock held in a margin account and therfore borrowable.

Just to complicate matters further, what about dividends? Who gets them? We know both longs won't get them. It seems reasonable to think that the original owner of the stock that got lent for shorting would lose the dividend, but again I've never heard of that happening.