Have you ever gone to bed and lost hundreds of thousands of dollars? That’s the risk you run by shorting financial assets without guaranteed balance protection.

Retail trader Joe Campbell recently launched a GoFundMe campaign to raise money to help cover the $106,000 he owes to E*Trade, a popular online trading broker that doesn’t cover negative client balances. Apparently, Joe went to bed shorting KaloBios, a struggling biopharmaceutical company that recently announced it was being acquired by a famous biotech investor Martin Shkreli. Joe didn’t get the memo, and the company surged from $2 a share to as high as $19 in after-hours trading. Joe’s net account value of around $37,000 quickly turned into a hole of more than $106,000.

KaloBios surged another 31% about a week after Joe turned to GoFundMe.[1]

GoFundMe: The power of crowdsourcing

GoFundMe is an innovative crowdfunding platform that allows people to raise money for various events and causes. The platform allows users to create their own webpage to describe their fundraising cause. By advertising through integrated social media channels, users can quickly spread the word and begin receiving donations for their cause. According to the company website, GoFundMe projects have collectively raised more than $1 billion.[2]

The campaign certainly worked for Joe. He managed to raise over $5,000 in no time, prompting him to end the fundraiser.

“I’m taking the GoFundMe posting off, over $5,000 is unbelievable and will go a long way towards this debt,” Joe wrote on the website. “It is far more than I ever thought I would get by doing this page.”

Risks of short-selling

Short-selling – the sale of a security not owned by the seller [3] – is risky business because your losses are theoretically unlimited. In essence, the higher the asset price goes, the more you stand to lose. This is in stark contrast to “going long,” where traders buy a security in hopes of selling it at a higher price. The maximum loss for a long position is 100% or your entire investment.[4] Losing all of your initial investment can be devastating, but at least you won’t go into debt.