if you buy a stock, you could come out arbitrarily well-off, but your losses are limited to the amount you put in. But if you short, your payoffs are limited to the current price, and your losses could be arbitrarily big, until you run out of money.
This is accurate.
it feels like an important asymmetry
This asymmetry comes from the fact that prices are non-negative numbers and do not dip below zero.
Effect on the market? Off the top of my head, here is a couple: long-term shorts are more risky than they seem; and shorting penny stocks (stocks with a low price, typically below $5) is also "extra" risky because your upside is small, but your downside is not.
The fact that shorting penny stocks is dangerous isn't because of their price per se, it's because they are typically much smaller companies than normal stocks. That means their profits and prices are much more unstable, so are much more likely to double in value in a short period of time than, say, British Petroleum. Also, because they are so small, much smaller amounts of money can change the price of the stock, which makes them more prone to market manipulation or investor exuberance (this is a non-linear effect, some stocks are so thinly traded that ju...
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