How does short selling bring the price down? I have created a simple diagram that shows my understanding of short selling:
Why would this eventually bring the price down?
In case you want to edit the diagram, here’s the source code:
@startuml title "Short Selling" autonumber database "Market Maker" as MM actor "Trader 1" as T1 actor "Trader 2" as T2 T1 -> MM: I want to borrow N shares of S MM -->> T1: Sure! The interest rate is %5 T1 -> MM: Deal! MM -->> T1: Here are your shares T1 -> T2: I have N shares of S to sell at market price T1 <<-- T2: Noice! I want to buy them T1 -> T2: Here you go T1 <<-- T2: Thanks! @enduml
And you can edit it here: https://www.planttext.com