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Short Selling

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What is Short Selling?

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Short Selling

An adage that describes short selling is "selling high and buying low”

Selling Short (Shorting) is an effective tool for traders as it allows them to profit from declining stock and index prices

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Short Selling

A trader goes short when he anticipates that the price of such stock will fall from the existing price i.e. he borrows shares through Securities Lending & Borrowing Mechanism (SLBM) Segment of Exchange(s) and sells it

As the share price dips, he buys the same share at a lower price and returns it back, while pocketing a profit in the bargain

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A little bit more onShort Selling

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Short Selling

Definition of "Selling Short": Selling Short implies establishing a market position by selling a

security one does not own, in anticipation that the price of the security will fall

Lets simplify and understand with an example in the next slide

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Short SellingExample You anticipate stock ABC will decline and enters order to SELL

2000 shares of ABC at market price and later buy the 2000 shares of ABC at a much-reduced price

The difference in the prices of the selling and buying is your profit

However if the share prices increase after you have sold at a reduced price earlier, then you end up with a loss

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Short Selling

Remember: Always, short selling is something that is speculative to a certain extent and is done in anticipation of quick profits.

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