SHORT SELLING

Short selling is a process where investor sells shares without owning it at the time of selling. Normally , an investor buys shares at a certain price to sell it later at a higher price. Coversely, in short sell its assumed by the investor that prices will decline in future. After shortselling , investor waits for the prices to correct and covers the short position by buying back the shares already sold. If the buyback price of the shares is lower then its profit else loss.

Short seller has the option to square off ( by buying the same number of shares as sold) on the same day or carry forward his short position in case the share price rises immediately after the short sell but the investor is convinced that the price will decline over the next few days. In such a situation he'll have to borrow the share from an entity or investor who's willing to lend for a charge. Later on he'll have to buyback shares from the market and return it to lender.

In India the intra day short sell had been the prerogative of individuals only. Institutions were not allowed to short sell because they have huge stakes in companies and hence can influence its share price to their advantage.

Short sell creates more liquidity in the market. Illiquid stocks which would otherwise would have been lying idle finds its way to the market and contibutes to liquidity.