What is Short in Share Trading?

by Nikesh | Last Updated On December 13, 2022

Understand What is Short in Share Trading? (Shorting or Short Selling)

Here we Understand What is Short in Share Trading? Long Position vs Short Position. How to borrow a stock to short sell.

Table of Contents

What is Short in Share Trading?

In terms of share trading, “short” or “shorting” or “short selling” means that you don’t have shares of a company and you still sell them.

Yes, any investor in Stock Market in India can short sell shares of a company even if he has no possession of shares. This is generally done in Indraday Share Trading.

Most share traders do this when he or she expects the price to fall. They sell shares at a higher price and at the end of the day, buy those same shares at a lower price thus making profit.

Profit is the difference between the Selling Price – Buying Price.

In a rolling settlement cycle, a trader will have to settle the transaction on the same day before the stock market closes.

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Short Selling Terminology

SHORT SELLING – Borrowing a security or commodity futures contract from a broker and selling it with the hope of making profit. All such securities must be later bought back and returned to the broker.
STOP ORDER: An order to buy or sell a stock ONLY if the price of the stock reaches a specified price (Stop Price).
SHORT POSITION: When a trader in Stock Market sells a security first to buy later with anticipation that the price will fall further.
LONG POSITION – Buy stocks from the long side with the expectation that prices will rise.
OPEN A POSITION -To open an investment buy buying or selling. Opening a long position requires buying, and opening a short position requires selling.
CLOSE POSITION: To end an investment by selling or buying. Closing a long position requires selling, and closing a short position requires buying.

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Example: Shorting a Stock

Suppose Share Price of a Company :ABC” Dropped from Rs. 100 Per Share to Rs. 85 Per Share and again Bounced Back to Rs. 90 Per Share. An Investors thinks that the Stock is poised for another decline. So, he will do some research and plan on following shorting of the stock:

Set his STOP ORDER at Rs. 90 with a Maximum loss of Rs. 5 Per Share.
Enter a SHORT POSITION only if the Price of the Stock Falls below Rs. 85 Per Share.
CLOSE POSITION at or below Rs. 75 Per Share thus making a Profit of Rs. 10 Per Share. If the
Position is Closed at Rs. 90, then there will be Loss of Rs. 5 Per Share.

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FAQs: Short Selling

What does Short mean in Stock Trading?

Short selling in stock trading means borrowing a security and selling it on the open market. Later during the day, the trader purchases the stocks back at a lower price, thus making profit (difference between selling - buying price). It is a kind of loan.

Example: A trader short sells a stock @ Rs. 100 per share and buys back @ Rs. 90 per share. He thus make a profit of Rs. 10 Per share.

Is Shorting the same as Short Selling?

Yes, in terms of Stock Trading, Shorting and Short Selling are Same.

Are Shorting and Short Position Same?

Yes, Shorting and Short Position are more or less the Same.

What is an Example of Shorting?

Suppose a Trader, Ramesh, anticipates that Price of Reliance, currently Trading @ Rs. 2,500 per share, will Fall in the Next 2 Months. He borrows 100 Shares of Reliance and Sells them to another investor, anticipating that he will Buy back the Shares at a Lower Prices when the Market Declines and Price of Reliance Stock Falls.

Now, Ramesh is "Short" of 100 Shares of Reliance since is Sold the Stock without Actually having Possession of the Shares.

Is Short Selling a Good Idea?

No, Short Selling is NOT a Good Idea, especially for Beginners with Little to No Experience.

Short selling is Gamble to make profit from falling stock prices. Traders can sometime face unlimited losses. Shorting is done using margin loan that has interest charges. Traders or Investors have to pay for holding the Short Position.

Conclusion

Short Selling in Stock Market is based on Anticipation. It is more like Gambling. I personally suggest to avoid this Strategy to Make money from Stock Market. Rather go for Long Term Investment.

I hope you liked this Article. Please SHARE with Others. Thanks!

What does Short mean in Stock Trading?

Is Shorting the same as Short Selling?

Are Shorting and Short Position Same?

What is an Example of Shorting?

Is Short Selling a Good Idea?

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