What is Naked Shorting?
Naked shorting is basically the false selling of the shares or it is based on the illegal sharing of the stocks. The trader must need to buy the share first before they sell it and it is necessary to mention that they are the borrowed shares at the time of selling. The reasons behind the popularity of the naked shorting are the discrepancies and the factors between the paper and the electronic trading.
Description of Naked Shorting
Naked shorting is actually illegal because it allows the manipulator a chance to force the stock price down without regard for normal stock price.
The illegal task in which the person sells the stocks that he doesn’t own or has not borrowed it in this hope that the price will fall and the trader would repurchase it at a lower price and then he will deliver the stock to the buyer to turn it into legal. In order to turn the dice in his cap, the trader must need to let the buyer know that the stocks are borrowed and he is selling someone’s stocks as he borrowed it for this purpose. Once they declare it borrowed they can sell it for short.