Short selling is a trading strategy where an investor sells a stock that they do not own, with the intention of buying it back later at a lower price. The goal is to profit from a decline in the stock’s price. This is the opposite of regular investing, where traders buy stocks expecting prices to rise.
In India, short selling is allowed but is subject to specific rules and regulations imposed by the Securities and Exchange Board of India (SEBI).
How Short Selling Works in India
1. Borrowing Shares:
In India, traders can borrow shares from a broker or use intra-day short selling, where shares are sold first and bought back before the market closes.
2. Selling the Shares:
The trader sells these borrowed shares in the market at the current price.
3. Buying Back (Covering the Short Position):
a. If the stock price falls, the trader can buy back the shares at a lower price, return them to the lender, and pocket the difference as profit.
b. If the price rises, the trader incurs a loss because they have to buy back the shares at a higher price.
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