Stock market: Know the pros and cons of short-selling stocks

 Stock market: Know the pros and cons of short-selling stocks

By Malvika Saraf and Parthajit Kayal

An investor can often bet against the rise of a stock price if he believes the share price is likely to fall. In that case, he can sell the share if he owns it and can even sell it if he doesn’t. The latter case is known as short-selling. Here he hopes that the price will fall, so that he can buy it back, and pocket the difference. This is a ‘sell high and buy low’ strategy that allows investors to make a profit even in the falling market.

Indian regulators allow investors to engage in intra-day short selling in the spot market. It is mandatory to provide delivery of shares for investors who short-sell stocks. It means all short-selling positions in the spot market have to be covered during the same day’s trading hours by buying back equivalent numbers of shares. However, investors are allowed to engage in inter-day short-selling through futures and options.

Practice of…

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