What is Short Selling? and how to do it?

If you are also interested in investing money in share market or investing in share market, then it is very important for you to know about short selling.

What is Short Selling? and how to do it?
What is Short Selling? and how to do it?

Because from this you can earn good money if you want to get complete information about what is short selling and how to do short selling. So let us tell you that you have reached the right website.

what is short selling?

Whenever we invest our money or buy shares inside the stock market, we sell them when the value of the purchased shares increases and earn our profit.

When the price of lions is low in the stock market, we buy lions and whenever their prices increase, we sell them and earn our profit.

But short selling is the opposite. In short selling, we borrow some shares from the broker and sell them when the share value is low.

Yes friends, you can also sell shares by borrowing from a broker in the stock market. When the value of the share decreases.

So we buy the shares from the broker and borrow the shares at a higher price and buy them at a lower price, in this way we make profit and we earn money from short selling.

The thing to keep in mind is that whenever we buy borrowed shares from the broker, we buy shares according to the value of the shares running in the stock market.

That is, if you have borrowed ₹ 10 per share from the broker, then after selling the shares, if the value of the share falls from ₹ 10 to ₹ 5, then you can buy shares from the broker according to ₹ 5.

Let us understand about 1 example of short selling in some simple words.

Suppose you borrow 100 shares from the broker at the rate of ₹ 100 per share and sell the same shares in the stock market. Now you will have ₹ 10000 after selling the shares.

Due to this, if the price of borrowed shares falls in the stock market and ₹ 100 per share if the price falls to ₹ 90 per share. At the same time you buy 100 shares borrowed from the broker at ₹90 per share.

Value of share borrowed from Broker = 100 Share × Rs.100 = ₹10000

When the share price falls in the stock market, you sell these 100 shares for ₹ 10000 at the rate of ₹ 100 per share and earn a profit of 1000.

Value of share purchased from Broker = 100 Share × Rs.90 = ₹9000

See friends, how did you sell 10,000 shares by borrowing it from a broker by short selling and you bought shares from the broker after the fall in the share price and you made a profit of 1000 from short selling.

Why is short selling done?

Short Selling: Short selling is done in order to earn profits in the days of short time and stock market decline or to save the assets invested by investors by buying shares.

Suppose you have bought 1000 shares at the rate of ₹ 100 per share by doing normal trading.

But due to your investment skills, you feel that the share value will fall. And you sell already if you share.

In future the share value falls to ₹ 90 per share, in this condition you have saved from loss of the invested property.

Asset invested = 1000 share × Rs 100 per share = Rs 100000

The details of the loss in future after the stock falls will be as follows:

1000 Share × ₹90 per share = Rs.90,000

Where you were going to lose ₹ 10000 if the share value fell in the future, you already sold your lion through short selling and saved from loss of the invested property.

Can short selling make profits all the time?

No, friends, you cannot make profit all the time in Short Selling because if you do short selling and the share price rises instead of falling then you may have to suffer heavy losses too.

Because in this the profit value is fixed but the loss value can be unlimited. Because until the price of a share does not become 0. Till then you can make profit in it.

But the increase in the share price is not fixed, so the more the share price increases, the more you will lose. Because if the price of lion increases, you will have to buy shares at a higher price from the broker.

You can do Short Selling only in Intraday Trading and Derivatives and earn good profit.

What is Intraday Trading?

In Intraday Short Selling, you have to do both the work i.e. buying and selling of shares in the same day, that is, due to Intraday Trading, the share has to be sold first and before the end of Intraday you have to buy the share from the broker. .

Risk Factor in Short Selling?

Short selling is quite different from normal trading or investing as in this you set short by borrowing the shares hence increasing the risk factor even more.

If the share prices increase instead of falling and you are unable to buy shares from the broker or do not buy. So you are included in the defaulter list and the broker you

Advantages of Short Selling?

  • By short selling, you can protect your invested assets from the volatility of the stock market.
  • By short selling you can earn money in less time.
  • The stock also serves to bring liquidity in the market, that is, you can get the money invested quickly.
  • Short selling works to improve the value of a share in the share market.
  • By short selling, you can make profit even during the downturn or downturn in the stock market.

Disadvantages of Short Selling

  • It does not have any limit in short selling, that is, the investor may suffer a huge loss if the share price increases.
  • Short selling also causes stock volatility in the stock market.
  • Short selling is also seen as fraud in the stock market.
  • If you do not buy shares on time from the broker or become a defaulter, you can face heavy penalty.
  • After selling the shares in intraday trading, if the upper circuit is hit on the same stock, then you may incur a loss.

Conclusion

Friends, when in the stock market, where investors incur losses at the time of decline, in the same way, you can earn good profits by short selling even in recessionary days, but short selling should be done very wisely.

Because you may suffer huge losses due to increase in the share price and if you do not buy the shares on time from the broker, you may be declared a defaulter and the broker can impose penalty on you.

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