The Danger of Shorting

Over the past two days, a small number of Stockfusers saw their account values turn wildly negative, with intraday returns as low as -600%! This seems impossible, but it’s not a system error. In fact, it’s happening to some traders in the real life: “Devastated” Trader Crushed By Soaring Biotech, Starts Online Begging Campaign To Fund $106,000 Margin Call.”

Just like the trader referenced in the article above, some Stockfusers went into Thursday holding short positions in $KBIO, which went up an astonishing 502% on Thursday and then another 75% on Friday. These price actions resulted in a substantial short squeeze – for each $1 committed to maintaining the $KBIO short, a trader would’ve lost $5 in a single day. Combined with leverage, the losses have literally resulted in “Game Over” scenarios.

We’d like to take this opportunity to remind everyone that shorting stock is no easy thing and the potential losses can be hard to fathom. Indeed, when you are long a stock, the maximum you can lose is 100% (in the absence of leverage), but when you’re short a stock, the maximum loss is literally unlimited.

For those users who have lost more than 100% of their virtual money, we have been forced to close the portfolios in questions. In real life, this could lead to much more substantial damages, as is highlighted in the article above.