What is short selling?

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Short selling is selling of a security that is not owned by an investor but is borrowed from the broker.

An investor may think that the price of a stock may fall within a week hence he would borrow the stock from the broker with a promise to return within the agreed timeframe. If the price of the stock drops within a week the investor would make a profit by buying it from the market at a lower price and return the stock to the broker. However, if the price of the stock goes against expectations and it increases, the investor would have to buy the stock at a higher price and suffer loss to fulfill his stock obligation.

Short selling works well in the bearish market.

NRIs are prohibited from short selling as per regulations.


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