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In unsurprising news, Reddit prepares IPO (www.businessinsider.com)

submitted 10 months ago by [email protected] to c/[email protected]

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Now the social media platform is aiming for an IPO in the first quarter of 2024 with a valuation of $15 billion, and has been in talks with potential investors like Goldman Sachs and and Morgan Stanley, per Bloomberg.

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[–] [email protected] 0 points 10 months ago (1 children)

I'm not an expert by any means, but the risk is real... Especially if you buy many stocks, it can bankrupt you very quickly. And shorting has a limit to how much return it can yield. If a stock is worth $10, and it goes to zero, your profits are $10. You can't make more than that, so an investor who wants to make money by shorting the stock will probably hold a short position on a large quantity of these stocks. So then, if you are shorting 100 stocks of $10, and the stock climbs to $50, you're going to have to buy $5000 worth of stocks, so your net loss is $4000.

There are too many cases of people losing lots of money by shorting a stock, even large investment firms had to beg for a bailout on occasion after a big short squeeze. For the most part you can mitigate risks, but it still has a higher risk than other forms of investment.

Recent examples of it was TESLA and GameStop... People shorting TSLA stocks lost 40B, and the GME short squeeze ended up with 6B loss.

[–] [email protected] 1 points 10 months ago

The GameStop stuff illustrates exactly what I'm talking about here though, all those people on Robinhood getting force-sold because their ownership of stocks was virtual and the ones actually on the hook to finalize things were the exchange's creditors.

Naturally for a big player putting billions on something they are going to be doing it directly and thus have full legal liability and unlimited potential losses like you say, but I expect losses are probably limited to the collateral amount for regular people in most circumstances, because otherwise it would be a ridiculous mess for the party providing the loans to them.