Shorting Stocks and the Open Market

In 1984, 33-year-old Gary Kusin started an educational software retailer named Babbage’s. Started in Dallas, Texas, Babbage’s quickly expanded from educational software to focusing on Atari and Nintendo video games. Little did Gary know at the time, but his company would one day become a symbol of a market movement and capture the attention of households, Congress and regulators across the United States. But before we get into what Gary Kusin’s small company became, we need to understand a few key terms and mechanics of a stock market.

Stock markets are exchanges, and in their simplest form are simply open-market auctions. Think Sotheby’s or a local estate auction, where potential buyers raise their paddle until only one buyer remains – but at a much larger scale. Thousands of buyers meet thousands of sellers every day through brokers on stock exchanges,⁽²⁾ and the items of interest are shares of a company’s stock. Generally, none of the money in these transactions goes to the company; rather the two parties barter for existing shares of the stock. Most of this activity has moved digitally, but the fundamentals are the same: every transaction has a buyer and a seller, and presumably both sides think they are getting a good deal.