Naked Short Selling is a type of securities fraud in which a trader sells a stock short without first borrowing the shares or ensuring that they can be borrowed. This means that the trader is essentially selling shares that they do not own, and this can artificially drive down the price of the stock.Here's how it works: -1- The trader sells shares of a stock short, without borrowing the shares or ensuring that they can be borrowed.2- The trader then waits for the price of the stock to fall, at which point they will buy the shares back at a lower price and pocket the difference as profit.3- However, if the shares cannot be borrowed, the trader will be unable to buy the shares back to close out the short position, which can result in significant losses.It's important to note that naked short selling is illegal in many countries, including the United States. The SEC has implemented rules and regulations to prevent this illegal activity and has taken action against firms and individuals that engage in it.However, in some cases, short selling can be done through legitimate ways such as, short selling with a locate, where the short seller locates shares to borrow before selling short, and short selling on a plus tick, which means selling a stock short only when the last trade in that stock was at a higher price.In summary, Naked short selling is a type of securities fraud in which a trader sells a stock short without first borrowing the shares or ensuring that they can be borrowed. This means that the trader is essentially selling shares that they do not own, and this can artificially drive down the price of the stock. It is illegal in many countries, including the United States, and the SEC has implemented rules and regulations to prevent this illegal activity and has taken action against firms and individuals that engage in it. However, short selling can be done through legitimate ways such as, short selling with a locate, where the short seller locates shares to borrow before selling short, and short selling on a plus tick, which means selling a stock short only when the last trade in that stock was at a higher price.
