Naked short selling is the illegal practice of selling shares of stocks that one does not have possession of and does not own.

Naked shorting requires knowledge of short selling. A hurricane forms in the Gulf of Mexico and threatens Louisiana.

The SEC determined that naked shorting contributed to the 2008 financial crisis, leading to its ban.

 Despite being illegal, naked shorting occurs in the modern market, and regulators watch for illegal activity.

Pros of Naked Shorting Liquidity Efficiency Market insight

Cons of Naked Shorting Illegality Price manipulation Volatility

The SEC investigated and found no evidence of naked shorting taking place at the time.