Excerpt from The Financial Times (See link provided)
The London Metal Exchange suspended trading in one of its main contracts after a vicious “short squeeze” sent the price of nickel soaring and left a Chinese metals tycoon facing billions of dollars in potential losses. Nickel prices doubled on Tuesday and briefly rose above a record $100,000 a tonne as banks and brokers rushed to close part of a huge position amassed by Xiang Guangda, the billionaire founder of China’s leading stainless steel producer Tsingshan Holding Group. It later pulled back closer to $80,000.Xiang had bet that the price of nickel would fall, but when the market moved sharply the other way, he would have been required to either post more cash to cover his losses or buy back the position. See first story on
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Shorting anything is wicked. I’ve been tempted to short the oil market in recent days (such funds exist) but withheld fire.
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Comments
Shorting is fraught with danger. I suppose a tech savvy player would be able to employ some type of stops to limit damage. But, in theory, your losses can be unlimited. Unlike an asset’s price dropping to 0 and stopping, something’s price has no upside limit (as the nickel speculator found out).
Real risk for shorts is that the underlying keeps going up and their brokers will issue margin calls or just liquidate positions before their accounts totally blow up. It is myth/urban-tale that one could lose infinite amounts by shorting.