{"id":3213,"date":"2023-01-12T13:11:56","date_gmt":"2023-01-12T07:41:56","guid":{"rendered":"https:\/\/aayushbhaskar.com\/?p=3213"},"modified":"2023-01-27T23:10:03","modified_gmt":"2023-01-27T17:40:03","slug":"how-to-short-sell-stocks-in-india","status":"publish","type":"post","link":"https:\/\/aayushbhaskar.com\/how-to-short-sell-stocks-in-india\/","title":{"rendered":"How to Short-Sell Stocks in India","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"
Most Indian stock market trading takes place on two major platforms known as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). T<\/span>he BSE exists since 1875. However, trading in the NSE started in 1994.<\/span><\/p>\n A stock market is a dynamic place with numerous companies listed, stocks of which are traded on a daily basis. Sometimes, the market witnesses a\u00a0<\/span>bull period<\/span><\/a>, and sometimes, the\u00a0<\/span>bear period<\/span><\/a>.\u00a0<\/span><\/p>\n Shorting<\/span><\/a>, or short-selling, is an investment or trading strategy used by people to make money through speculation. <\/span><\/p>\n An investor borrows the shares from a broker without knowing to who they belong. They then sell the shares immediately in the hope to scoop them up later at a lower price. <\/span><\/p>\n This lower price enables them to return the shares back to the broker and pocket the difference. This difference is their income. <\/span><\/p>\n However, shorting is a risky process. It is definitely more complicated than buying stocks<\/a> or obtaining a long-term position in the market.<\/span><\/p>\n This strategy basically speculates on the decline of the stock\u2019s price and should only be undertaken by highly skilled and advanced traders or investors.<\/span><\/p>\n Investors of all classes, retail and institutional, are allowed to short-sell stocks in India.<\/span><\/p>\n Below are some pros and cons of short-selling \u2013<\/span><\/p>\n If you are someone who wants to short-sell stocks in India, here is how you can do the same \u2013<\/strong><\/span><\/p>\n It is imperative to understand and analyze each stock before choosing the one you want to short sell. <\/span><\/p>\n This involves reading their past records, going through the graphs, and being aware of the latest news related to that company.\u00a0<\/span><\/p>\n Once you have analyzed all the stocks carefully, it is time for you to choose. You can either choose one single stock or multiple of them. As you select the stock you want to short-sell, you need to contact your broker. <\/span><\/p>\n Ask your broker to find the stocks you feel will go down in price. He then locates a suitable investor and\u00a0<\/span>borrows<\/span><\/a>\u00a0the shares from them with a promise to return them back on a mutually agreed date. <\/span><\/p>\n You get the shares. But do not forget, nothing comes for free. In order to borrow the shares, you need to pay interest to the broker for the same. This is his commission.<\/span><\/p>\n As soon as you get a hold of the borrowed shares, directly sell them without wasting any time. <\/span><\/p>\n This lets you cash the maximum profit that you will be getting when the price falls. The amount that you get from the sale is yours, for now.<\/span><\/p>\n After selling the shares, now all you have to do is wait. Wait until the price goes down to a level you had thought of. There is no set rule about how long a shorting can last. The borrower, however, can be asked to return the shares at any time with minimal notice. <\/span><\/p>\n This generally does not happen, as borrowers cover margin interest on a timely basis.<\/span><\/p>\n When the cost of the shares falls, you buy them back. You pay the amount that you had cashed from the sale and return the shares back to the broker. The broker then gives them back to the original investor. <\/span><\/p>\n You, on the other hand, make a profit from the selling VS buying price. For example, if you sold the borrowed shares at Rs 1,000, you pocket the Rs. 1,000. The cost of those shares now comes down to Rs. 800, and you buy them and this price. <\/span><\/p>\n You pay Rs. 800 and return the shares back to the broker. The Rs. 200 you are left with from this transaction, is your profit. It is all yours and nobody else has a right to it.\u00a0<\/span><\/p>\n There are some external costs that you, as a borrowing investor, need to pay. These costs are \u2013<\/span><\/p>\n You can either sell the stocks in a spot market or a future market. <\/span><\/p>\n Trading in the spot market means that you need to close the position the very same day. <\/span><\/p>\n Prices may not go down on the exact same day, which may result in a loss or nullify the transaction. Even if the stock closes at the same price you sold them at, you still have to bear the interest rate to the broker. <\/span><\/p>\n This means you lose the amount, in maximum probability. <\/span><\/p>\n This is why it is recommended to traders who want to short sell, to do in the futures market. The\u00a0<\/span>futures market<\/span><\/a>\u00a0allows them a time span that gives them enough days to wait for the prices to fall, through which they can earn a profit.<\/span><\/p>\n However, you must remember that the price will not fall every time you borrow a stock and short it.<\/span><\/p>\nPROS:<\/span><\/h3>\n
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CONS:<\/span><\/h3>\n
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Analyze the stocks closely: <\/span><\/h2>\n
Borrow the stock you want to bet against: <\/span><\/h2>\n
Immediately sell the shares: <\/span><\/h2>\n
Waiting time: <\/span><\/h2>\n
Repurchase the shares at the new price: <\/span><\/h2>\n
External costs:<\/span><\/h2>\n
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