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What is Short Selling? August 10 2017Stock Market Trading

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What is Short Selling in Stock Market?

Trading is not just about buying of shares at a low price and selling them back at a higher price, it’s about exploiting the right opportunities. Given the unpredictable nature of the market, a wise investor tries to sail through and take advantage of any given situation, favorable or unfavorable.

What is Short Sell?

Short selling is a term used when an investor sells the stocks that he doesn’t own or possess. That means it is the selling of the stock with a belief that the price of the very same stocks will fall and he will make a profit by repurchasing the stocks at a low rate. He has to also make sure to close his position the very same day. If he fails to cover the stocks before the closure of the market, the stocks will be auctioned by the exchange.

Who can Short Sell?

Short selling is very much in practice among retail investors. They can short sell according to their convenience as and when they want. But banks, insurance companies and other institutional investors are not allowed to short sell in India as the SEBI (Securities and Exchange Board of India) does not permit them to do so. However, the matter is up for consideration before the SEBI on the issue of letting institutional investors to short sell.

Who is allowed to Short Sell?

Though the process of short selling or selling short is pretty simple, certain things need to be kept in mind. In order to be able to sell short, you have to first open a margin account with a brokerage firm and maintain a certain amount or certain number of stocks as margin. Then, your broker allows you to borrow stocks twice the size of the amount you have in the margin account. For example, you have Rs. 50,000/- cash or stocks of the same value in the margin account, you can borrow stocks of worth Rs.100,000/- to short sell.

When to Short Sell?

Sometimes, as a result of manipulation, the market price of stocks of certain companies rocket sky high. This is when smart investors short sell their borrowed stocks and wait for the price to fall back to its normal rate. As soon as it happens, they repurchase the same number of stocks. This presents an opportunity for an investor not only to earn profit but also to build a robust portfolio that can withstand any downturn. Short selling also has its own fair share of risks. So it is important for an investor to do a thorough study and take calculated risks to avoid loss.

Conclusion

At the end of the day, all that matters to an investor is profit. What truly doesn’t matter is whether it comes through short selling or through regular trading formula of buying low and selling high. At Indira Securities, we provide all time quality services to an investor. If you are looking forward to enjoying low brokerage and unmatched services, you can open a Demat account with us. You can also avail to our powerful training programs on how to become a smart trader or investor.


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Prevent Unauthorized Transactions in your demat and trading account --> Update your Mobile Number/Email id with your Depository Participant and Stock Broker. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat/trading account directly from CDSL and Stock Exchanges on the same day.........issued in the interest of investors...

1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.

2. Update your Mobile Number & Email Id with your Stock Broker/ Depository Participant and receive OTP directly from Depository on your Email Id and/ or Mobile Number to create pledge.

3. Pay 20% upfront margin of the transaction value to trade in cash market segment.

4. Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued by NSE vide. Circular No. NSE/INSP/45191 dated: July 31, 2020 and NSE/INSP/45534 and BSE vide Notice No. 20200731-7, dated: July 31, 2020 and 20200831- 45 dated: August 31, 2020 and dated: August 31, 2020 and other guidelines issued from time to time in this regard.

5. Check your Securities/ MF/ Bonds in the Consolidated Account Statement issued by NSDL/ CDSL every month.

"As per the directives of CDSL and esteemed Exchanges, it has been made mandatory for every client to furnish their latest KYC details viz. Valid Mobile No., Email- Id & Income range on or before 31.05.2021 else your Account will be marked as Non Compliant and will be Freezed till the compliance of such requirement."
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