Why the Short Trade Prohibitions are Bogus

The SEC and FSA claim that their short trade prohibitions are designed to protect the markets and investors, from the evil traders who like to make a profit from short trades, at the expense of everybody else. This is complete and utter rubbish.

Firstly, the only traders who make short trades are professional traders, and professional traders will just as happily make a long trade if a long trade would be more profitable. Professional traders are only interested in making money, not in controlling the markets, and not in trying to take over the world by forcing the markets to move down.

Secondly, traders make short trades because they believe that the markets are going to move down. Fundamentals traders make short trades because they believe that a company is not doing well in its business. Technical traders make short trades because their charts indicate that the markets are about to move down. Either way, the resulting short trade is a response to the market moving down, not the reason that the market moves down.

Thirdly, all short trades are exited by buying, and this buying can have enough power to stop a runaway down move. Short trades become profitable when the market moves down, but short trades are not held forever (unlike buy and hold trades). As short trades are traded by professional traders, they are always exited when they have moved far enough into profit. This exiting of the short trades provides new buying in markets where most traders are still selling. This new buying balances out the selling, and can stop a down move completely, and actually start a new up move.

The SEC and FSA short trade prohibitions are not designed to benefit the markets, and they are not designed to benefit traders or investors. The short trade prohibitions are a feeble attempt to control the markets, and to put money into government and coroporate pockets (nothing new about that). By restricting short trades, the SEC and FSA are actually putting the markets at risk of further declines, because the markets' natural market dynamics have been removed. If the markets are going to move down (for any reason), nothing can stop them from doing so, and interfering with them can actually strengthen the decline.