How does selling a ton of shares into the market move the price down, but buying an equal number of shares back to complete your short doesn't move it back up?
Is this not a double-edged sword? If you dump enough shares that you actually affect the market price, you'll have to do the same thing on the way back.
This is an actual good question which I'd offer a few answers for, and I'm sure there's other partial explanations as well.
1) In an ideal world, the tactic tanks the price enough that investors don't support the company, they have trouble raising capital, and go out of business and the borrowed share (I believe) either never has to be repaid or is trivial to recover.
2) When you're dealing with really big money and want to enter or exit a position without affecting the price too much, you don't just go to your stock broker and enter a buy or sell order for however many shares you're dealing with. You use experienced people and automated algorithms to time the deals to have as minimum an impact on the price as possible and enter/exit smartly.
If I can use methods like 2 or 3 to make huge orders without moving the market, why bother shorting?
Couldn't I use this to make easy profits on longs?
Say "X" is the method to place orders that don't affect the price.
1. Buy 5 million shares via X, at the current low price
2. Buy 5 million more shares via my stock broker, pumping the public price
3. Sell all 10 million shares via X, all at the new high price
My guess would be that the organizations you deal with through these dark pools or whatever discount your trades based on the perceived advantage you're getting by not making them public. If the public price is $100, and you want to sell a jillion shares through a dark pool, nobody is going to offer you better than, say, $98 per share or whatever their quants have calculated as a fair price for a sell that big.
How does selling a ton of shares into the market move the price down, but buying an equal number of shares back to complete your short doesn't move it back up?
Is this not a double-edged sword? If you dump enough shares that you actually affect the market price, you'll have to do the same thing on the way back.
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