- What is Short Selling and How to Benefit From It?

Short Selling is a strategy in which a trader sells a commodity or security that he or she does not own in order to profit from a falling market invest money.? In this trader will borrow the commodity or security from his broker stock market, who usually in turn has borrowed the shares from some other investor who is holding his shares then immediately sell on to the buyer invest money. At a later date stock market, the trader must buy back the commodity or security from the market to close the position invest money.? If the value of the commodity or security has fallen during this period the short selling trader?s profit will be the difference between his original sale price and the buyback price invest money.

Short selling is strategy to express bearish view point of trader towards a commodity or security invest money. Essentially this is another face of coin in any freely traded commodity where trader feel that current value of commodity is inflated and does not represent actual value invest money. This is exact opposite to more known buy and hold bullish strategy where investor buy the commodity or security feeling it be undervalued and will increase in price invest money.

Short sellers need to be aware of three important aspects which can affect profitability of their short positions invest money.

1 invest money. Interest on Borrowed Security ? As the commodity or security is borrowed from broker or third part account so interest is required to be paid on that invest money. This is generally not applicable if you are settling your account on same day but can erode profits if kept on rollover for long duration invest money. Depend on brokerage firm it percentage can change but generally it?s around overnight interbank lending rate invest money.

2 invest money. Dividend Distribution ? If the security which is been shorted by trader gives out dividend then short seller need to short the dividend i invest money.e invest money. the dividend amount will be taken out from his brokerage account invest money. So it is very important to keep track of dividend date of security trader want to short invest money.

3 invest money. Short Squeeze - A short squeeze results when the price of the stock rises and investors who short-sold the stock rush to buy it to cover their short position invest money. As the price of the stock increases stock market, more short sellers feel driven to cover their positions and this result in further escalation of price in short duration of time invest money.

Markets in all developed economies provide easy short selling procedures where individual shares can be shorted and rolled over for multiple days but currently in Indian Stock Market short selling of shares is only possible on intraday bases invest money. If traders who want to take bearish view of certain scripts for longer duration they can do it through futures market invest money. It is to be noted that availability of scripts in futures markets are very limited as compare to overall number of traded scripts invest money.

When the underlying market is in downtrend stock market, short selling is the best strategy if implemented correctly in hands of Commodity stock market, Equity and Forex traders invest money. To be a successful trader one need to learn both long and short strategies as market itself goes through bullish and bearish cycles periodically giving plethora of opportunities to generate wealth invest money.