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From my understanding in a short ladder attack investors bid lower and lower prices to drive down the stock value. I assume in many cases this will scare retail investors into selling further compounding the downward price.

Specifically, in the case of GME last week the price went from ~468 to ~120 in nearly a hour. My question is why wouldn't hedge fund investors keep doing this until they can close there shorted positions at a profit?

Apologies if this a trivial question. All the hype around GME this past week has really gotten me interested on the mechanics/strategies use in investing.

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    " All the hype around GME this past week has really gotten me interested on the mechanics/strategies use in investing." As a side comment, none of what has happened with GME in the last week is about investing, it is at best "day-trading", more likely "gambling", and at worst" herd mentality following manipulation on both price directions". – Grade 'Eh' Bacon Feb 1 at 19:47
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    If two people short and buy from each other, that has no effect on the market. However, if one or more people sell illegal naked shorts short ("counterfeit shares"), that's simply flooding the market with illegal sell orders and that drives share price down. Echoing what @Joe Baker stated in a comment under a deleted answer, the only source of this short ladder attack is a Seeking Alpha article and some other sites like Reddit. They are full of misinformation and concocted conspiracy theories. – Bob Baerker Feb 3 at 18:56
  • Furthermore, this intertwined concept of two firms conspiring in a short ladder attack is nonsensical. If A sells 10k of naked shorts at $11 and covers them at $10 and at $10, B sells $10k of naked shorts, nothing has changed other than a $1 of short gain was booked and there are still $10k of naked short shares in the mix except that a different person now holds them. The closing of the existing short position and opening by another doesn't drive share price down. A could have simply left his $10k share position open. Now shorting additional naked shorts would be a different story. – Bob Baerker Feb 3 at 19:02
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My guess is that some Redditor or YouTuber concocted the strategy of a 'short ladder attack' to convince people to hold their long positions. Somewhere on Reddit there's an explanation that in a 'short ladder attack', hedge funds lower their bids and trade shares with each other, fooling algorithms and temporarily driving price down. This is utter nonsense.

The National Best Bid and Offer (NBBO) is a Securities Exchange Commission (SEC) regulation requiring brokers to trade at the best available (lowest) ask price and the best available (highest) bid price when buying and selling securities for customers.

Any buy order at a price less than NBBO goes on the order book as a limit order at a lower price. The same holds true for a seller whose price is above NBBO. The only way that traders can move price is with more buying (or selling) volume that takes out the available supply at current price.

The reason that GME went from ~$468 to ~$120 in nearly a hour was a combination of profit taking and additional shorting (if shorting was still allowed that day). No one can drop share price by trading under the market (NBBO).

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