Hindenburg Research is accusing Adani Group of fraud and it’s a short seller. Read to know more about short selling and why this is one.
The accusation by Hindenburg Research
Hindenburg Research, a short seller disclosed short positions in Adani Group on January 25. The firm is alleging accounting fraud and stock manipulation in its new investigative report. “Buy low, sell high” is a traditional investment strategy where a person buys a security or stock for a particular price and later sells it when the price hikes, making a profit. This is known as the long position, based on the view that the price of a stock appreciates with time.
However, short selling or shorting is a trading strategy where the expectation is for the stock price to fall. While short selling is based on the “buy low, sell high” strategy, the sequence transforms to selling high first and buying low later. Here, a trades essentially borrows the securities they are selling instead of owning them.
More on short selling
In the stock market, traders short-sell stocks by selling shares borrowed from others using brokerages. This means the trader purchases shares at lower rates when the price of the shares falls to an expected level. The trader then returns them to the owner by making a profit. However, if the stock price appreciates instead of falling, the trader is forced to buy them at a high price and return them to the owner. Hence, the trader books a loss.
As per its official website, Hindenburg Research has flagged potential wrongdoing in a minimum of 16 companies since 2017. Last year, it took a short and long position on Twitter. In May 2022, it stated it was short because it believed Elon Musk’s offer of taking the company private may get repriced at a lower rate if Musk walked away.