What is short selling in share markets?

Answer 1

It's like buying a stock, but in reverse.

Selling short means you borrow stock from the broker and sell it first at the (hopefully) higher price.

And then, instead of hoping it goes up, you want the stock to go down. At that point, you buy the stock back at the lower (hopefully) price and return the shares to the broker.

The difference in price minus commissions is your profit/(loss).

The borrowing part is done behind the scenes, so no worries there.

Hope that helps!

Answer 2

Short selling means to sell the shares (when the price is high) which you don't have and buy them later (when the price is low). This strategy is generally used in an intra-day trading for a bearish market.

But this can also be used for the shares which you own, which are under performing.

e.g. Suppose you have 100 shares of ABC which is currently quoting at 100. If you feel the price of this share will further decrease for the time being in a bearish market, you can short sell the share and cover it (buy) the same day at a lower price. This way you still make the profit on your share in a bearish market without loosing the shares.

happy investing

Answer 3

Hello Miami Heat,

The first link below is to the wiki page about short selling, it's quite well done.

There is one thing nobody mentioned so far, I'll quote from the wiki link: "This practice has the potential for an unlimited loss".

Allow me an analogy:

- if you let an object fall down, the lowest it can fall is to the ground.

- if you have a balloon filled with helium, there is no real limit of how high your balloon will "fall up"

The same way, if you:

- buy 1 share of IBM for $100, you can only lose $100, as the share price cannot go lower than zero.

- if you short 1 share of IBM for $100, you can lose an infinite amount of money, as there is no real limit to how high the share price can go on the upside.

My conclusion: I like to buy shares, I like to short shares, but I only do both at the same time, so as to be market neutral. That tends to limit the risk. More on that on the second link.

Let's make money!

Good luck

Marc

Answer 4

Short selling is the process of taking a short position in share Market transaction with an expectation that The stock value may
go down.

i.e. You have a Share Value of say Rs.125
and you have anticipated that it may go down.
But your buyer thinks that it may go up say to Rs.140

So both are taking position and the deal is for Rs.125/-
After 15 days the Value is Rs.115/-

So the buyer should buy the stock at old value of Rs.125/- or
should pay Rs.10/- per share due to your short position.

Answer 5

When you think of short selling of ABC company shares ( for Ex)

When you speculate that the price of ABC share will come down in near future. Basically you target a poor performing share.
Example :
Price of ABC share now is Rs 30 .
You expect that this price somewhere down the line would be < 30 (lets say 25.)
You short sell ABC shares.: Qty = 1 shares
But you dont own this 1 share of ABC .how can you sell when you dont own ?
Now the funda is : these shares would come from your brokers inventory .He can lend you those shares .
In short selling , delivery of shares has to be done to the one who is buying from you .Hence you need to borrow from broker and delivery is done to buyer.
Now since you have borrowed shares from broker , you also need to give those back to him..For this purpose after a short sell follows something called SHORT COVER wherein you buy those shares...Now lets say your speculation comes to be true and after some days the share price of ABC becomes 25.
You perform a SHORT COVER and buy the share.
So you record a profit of 5 Rs in the process.and also the broker gets back his shares.
If by chance your speculation goes wrong , you still may have to forcefully short cover if the broker is in need of those shares

Answer 6

Ok, Miami, you loaded this question.....;-) Short selling is when you sell shares of a company before you even buy them (your broker will sell someone elses shares for you)...you are hoping that you will be able to buy them later at a lower price (just remember, buy low, sell high...either short or long) if you sell them at 15$ and buy them back (to put back in your brokers "kitty") buy them back at 10$, then you've made 5$. Just remember this little known fact....should your broker want their shares back (regardless of what you want to do, or where the shareprice is) you have no choice but to buy them back....that is part of what makes them riskier than just going long...no one can force you to sell your long shares like they can force you to buy back your shorts! But for the most part, it works simular to buying stocks...just the other way around....you sell first, and buy later.....buy low, sell high. Should you take this mission....best of luck!

Answer 7

You sell first and, then at the opportune moment on the same day before the market closes, buy it to find out loss/ profit.

Answer 8

You sell first and buy back at a lower price to get your profit. Exactly the reverse of a long position.

Answer 9

buying and selling OR selling and buying, without actually having possession of the shares within the settlement period.

Answer 10

sellin the share without having them