Naked short selling is the now illegal practice of shorting stocks that have not been proven to exist.#

  • Typically, traders must first borrow a stock or decide that it can be borrowed before shorting it.
  • Due to various loopholes in the rules, as well as discrepancies between paper and electronic trading systems, open short positions continue to occur.
  • Despite the controversy, some believe that open short positions play an important and positive market role in price determination.