Amazon Affiliate Offer

Aug 11, 2009

Meaning and Explanation of Short Sell and Short Sell Technique

Short Sell is a very interesting and surprising topic in the Share Market.It has got good advantage for the day traders who expect one particular Share will reduce on that day. Many Intraday Traders book profit by using this technique. This technique not only having advantages but also having disadvantage. you will understand the disadvantage of short sell technique after learning what is Short Sell?

I hope you already know how to buy and sell Shares? well, the total process I explained in that post is of general procedure of buying and selling Shares. I didn't add any Short Sell related topic in that post. when coming to the point, in general procedure you should buy shares first then wait for that scrip value to raise, then you have to sell in order to book profits. But in the short Sell Technique you can sell the shares at market price with out buying them first. Yes what you read is correct. you can sell shares even if you don't have those shares in your portfolio. and you can buy shares later but on the same day when the price of that particular scrip reduced. It is just reverse procedure to the general procedure which I explained previously. Here in short Sell you sell shares first with out having them and buy later on the same day at low price. The difference between the selling and buying price is your profit. for better understanding with example see the below picture.



For example take Tata Motors Scrip from the above Picture. Its LTP(Latest Trading price) Price was 319 when I captured and High Price was 340. It means Tata motors was gone to 340 before I captured the pic. In this case assume that I am not having any of tata Motor shares in my portfolio and sold 100 Tata Motors shares at 340. and later you can see that Tata Motors LTP was 319.70. So assume that I bought those 100 shares back at 319.70. So the profit for one share is 20.3. So total profit for 100 shares is 100* 20.3 = 2030. So the total profit that you could book on that day on the Tata Motors Scrip is 2030 rupees. This is the advantage of the short Sell Technique.

There is also disadvantage in Short Sell. After you sell shares in short sell some times if the price of that scrip increases then you would be booking losses. The main disadvantage of this method is that you can not carry this transaction to the next day. You should close the transaction on the same day. Means if you Short Sell, then you should buy those shares back on the same day, you can not hold it to buy it on the next day. If you don't buy then the online system would automatically buy at closing price with out bothering about your loss. So use Short Sell Technique only if you are very confident about particular scrip that it's value will be reduced on the same day. If you are not confident then don't Short Sell.

One more point I forgot to say you which may leads you to the confusion. In Short Sell you can sell shares even if you don't have those shares. In that case you should have the money in your trading account equivalent to the Trade value. for example if you want to sell 100 shares of a scrip which is 100 rupees in market price then you should have 10,000 rupees in your trading account.

I hope you understood well about Short Sell. If you don't understand or if you have any doubts ask me in the comments section. I will answer you the same in the comments section so that it will be useful for others who is having same doubts.






Feed Burner

If you like my post and want to get all my Future posts to be sent directly to your E-Mail address please click here to subscribe. Subscribe via E-Mail

Enter your email address:

Delivered by FeedBurner