Shorting or Short Selling, When an investor thinks (based on technical and fundamental analysis) that the price of any particular stock or share is going to come down or decline, they usually sell it first and then buy it later at a lower price to earn profit from a bear trend. Before investing in the stock market, investors must have knowledge of the guidelines, key concepts, and risk appetite.
Earning money from a falling market is all about short selling. Investors are selling stocks that they do not have and buying them back before the market closes or at the earliest (stock market timing is 9:15 a.m. to 3:30 p.m., Monday through Friday, except national holidays). One should always remember to place a MIS order, which is Margin Intraday Settlement. Usually, stock brokers square it off 10 to 20 minutes before the market closes.
SEBI and the government of India allow investors in India to do short selling, but with a clause of intraday settlement. There are countries like France and China that do not allow short-selling of stocks. As it's an intraday settlement, investors will not get any delivery of the stock if the net position is zero, which means if the quantity of selling and buying remains the same, no delivery is expected. Ideally, delivery of the stocks (T+1) is only available if the stocks are not settled or squared off in one day. When the bought share starts in the investor's Demat account, then delivery is confirmed.
Usually, the buyback of the sold stock is done via MIS by the broker themselves; however, what if any investors are unable to buy back the short-selling share? There is an exceptional scenario where if an investor does a short sale and, owing to the upper circuit, is unable to buy back the same quantity even at a loss by 3:30 PM, a stock broker will do settlement on the investor's behalf as the auction approaches between 3:30 PM and 4:30 PM (this window for settlement is only for stock brokers and not for retail investors). The settlement via auction may be a huge loss for investors.
Now investors with a Zerodha broker demat account can participate in auction trades between 2 p.m. and 2:30 p.m. for a risk-free profit of up to 20%. Investors must have the same share in the demat account for selling items that are appearing in the auction market. Investors can place bids accordingly.
