RE: Imagine16 Jan 2019 20:09
Naked shorting, which is rumoured to be rife on AIM, sees a market maker sell stock that does not exist in a target firm to retail investors at a higher price until they have built up a large short position. The market maker’s goal is then to close the short by participating in a discounted placing of the target firm and then using the placing stock it receives to settle its open trades, pocketing the difference in the two prices. Such shorts can typically be anywhere between £300,000 and £500,000 in size, although there have been notable occasions when the naked shorts have run into millions.
By targeting firms that are likely to raise money, such trades can be incredibly profitable for the market maker, while the retail investor invariably ends up on the losing side.