When you buy stock, do you ask where they came from? I don't. They could be the product of a naked short sale.
It all goes back to supply and demand and trust in the system. (just like fiat currency)
If you can buy unlimited shares in a company, then there is no limit to the supply.
In effect, the naked short sellers are "printing" or creating their own shares.
If a company has an O/S count of one million shares, and the market has 5 million shares in circulation, then it becomes easy to fill any size order. (No upward pressure on price for the same demand) And, at any given point, how do you really tell how many shares (real or counterfeit) there are available. Ultimately the value of the stock is artificially depressed and so is the PPS.
It is a tough concept for "honest" investors to grasp. We believe that there is someone watching out for this type of illegal activity. But when the perpetuators of this activity collect (our) money and then go unpunished, who are you going to call?
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