What is Short Selling Explained by CA Rachana Ranade

if you ask a person who is a pro in stock market as to dude what the short selling he'll say it's so simple first sell when the price is high and when the price falls then buy and you will be like first sell high then buy "Asa Kasa Kay?? rhyming right ? Hi guys CA Rachana Ranade here and I welcome you all to a brand new lecture on short selling actually have covered this concept in my basics of stock market lecture series so just in case if you have not yet checked it out please go

ahead and check out my entire lecture series when I received a lot of queries from people as to ma'am could you just elaborate a little bit more could you give us a little bit more examples on how it happens practically what type of order if we choose it then how it impacts the entire short selling if you can elaborate it a little bit more then it would be beneficial for us these were some kind of feedbacks I received on my course and I thought why not make a separate lecture which details a little bit more

about short selling and that's why I'm going to start about short selling right away So first let's understand the very base concept of what is short selling ok so in short selling like I told in the very first section of the video here the sequence of transaction is exactly opposite ok first let's understand a general transaction what how does a general transaction takes take place first you buy why do you buy? You feel that the prices will go up that is why you buy okay so first you buy let us say you buy a stock

100 rupees and you feel that the stock price is going to go up that's why you wait until it goes up assume it goes up to 120 right then what will happen tell me at 120 you will sell it off correct what is your profit 120 which is your selling price minus 100 which is your cost price but chronologically what happened first first you bought at 100 then you sold at 120 this is normal buying okay when would you do such kind of a normal buying when you are bullish on the market when you feel

that is markets will go up okay what is the situation right now as I'm recording a video everyone is of the hope that some point of time in the near future market will see some level of correction right at this point it becomes a little bit tricky as to how can I earn money in falling markets I will repeat the sentence very important how can I earn money in falling markets so you feel that this stock is currently at let us say 150 rupees right now XYZ some stock is at 150 rupees right now and

you feel that this stock will definitely come down to 120 is what you feel so are you bullish or bearish or bearish on this stock okay so what can you do a normal person who doesn't know short selling he will wait wait and watch till the stock comes down to 120 and then he will enter at 120 but if you're a smart investor what will you do you will sell first at 150 and when the price goes down at 120 you will buy so what happened in this transaction in this transaction you sold something which

you did not have what yes right you sold something which you did not have and when the prices went down from 150 to 120 that is when you bought it back okay for such a transaction you need to place an MIS order okay so always remember this whenever you are doing a short selling place an MIS order but what is this MIS order you want to check it out in the next section. Okay now let us understand what is MIS MIS means Margin Intraday Settlement okay the word itself says it's an intraday settlement so what

happens in an intraday settlement you're going to buy and sell both on the same day but again remember what is the key feature of short-selling sell high and then when it goes low then buy so step number one is sell step number two is buy but when it is going to be an intraday situation okay so it has to be done during the market as only everyone knows that the market us are from 9:15 in the morning to 3:30 in the afternoon but please be aware that these MIS transactions are squared off by various brokers

at their own time slots okay like there'll be many brokers who will auto square it off at 3:10 okay so if you so let's take it take this as an example the previous case which were taking that at one hundred and fifty rupees you had sold a specific stock okay and unfortunately it doesn't come down but it was higher okay it goes 160 are you at a loss now yes how much lost 10 rupees per share okay now you are sad you're feeling like maybe in another 10 20 minutes it will come down but broker

will not wait till then broker will automatically square it off at 3:10 okay there are some brokers like Zerodha who give you that additional 10 minutes so brokers like Zerodha will squareoff of the transaction at 3:20 okay so that additional 10 minutes of hope you can have that may be the share price will come below 150 and you may make certain profit okay but then the whole question now I hope you have understood this as to what is MIS but still one question I'm sure remains in your mind that if I don't have a share

how am I able to sell it? So let me try to answer this question in the most simplified manner we'll take an example for this okay so assume that you are wanting to sell a share first because you feel that will go down okay assume that you sell hundred quantity of a specific stock okay then generally many of the brokers would put a minus sign here because you were selling it now so first it will be minus hundred whenever you are selling it assume that you sold it at a price of let us say 150

rupees okay after 1 hour the same stock is trading at 140 rupees let us say so what will happen when you buy see when you sold it was minus quantity now you didn't have anything but when you buy it it will be what, plus hundred quantity okay and now tell me what is the net effect you sold hundred and you bought hundred so what is your net quantity at the end of the day remember this I had told you MIS this is very important for any short selling what is MIS Margin Intraday Settlement the word

it says this is to be done on the same day same day first it was minus hundred when you sold the quantity now the last hundred when you bought it so what happened at the end of the day and then end of the day do you have to sell your shares to anyone do you have to buy it from anyone else no final is zero position what about this 10 rupees this 10 rupees would nothing be but your profit okay because you had sold it at 150 and you bought it back at 140 so 10

rupees in fact is your profit but still some people are scary but how come how come someone can allow you to sell first if you don't have it answer is very simple for this our Government allows it our regulatory body allows it so what's the problem so in India everyone knows this that SEBI is the authority which is a regulator to the stock market okay SEBI allows short selling in India in fact in 2011 there were some countries like France Spain Italy and Belgium who had banned short selling okay simple so if these countries banned

short selling for some time this was at least 2011 example let us example at meeting during Corona time China had banned short selling in some specific commodities in in some indices okay so if if that was done by a specific country if a country bans short-selling then it will not be allowed in fact at that time there were great rumours at India also may ban short-selling okay so had our Government banned it could it have been bad answer is yes so how are we allowed to do short selling in India right now because it is

allowed by our regulator but what does our regulator say very important that you have to cover it within the same day you have to do it as an intraday settlement okay now have you understood how can I do it what is answer how is it a lot simple our government allows it a regulator allows it and that is why we are able to do it but what is the precondition it has to be done within the same day question is what if I don't put this by order I have given you the answer in the

previous section at 3:20 I gave you the example of Zerodha at 3:20 they'll do an auto square off okay so I hope this point is clear one last question still to be answered that I drew it in the next section okay The last question which remains in my mind okay now I'm thinking of two questions which remain in my mind number one when I buy the share at the end of the day okay so either as an automatic square of or either I place a buy order myself there are some viewers of mine who had

asked this question to me that when I buy that share again will I get the delivery of those shares how will you get a delivery as I mentioned it's minus hundred first and then plus hundred so what is your net position that position is zero if your net position would have been plus something then you would have gotten the delivery of the shares okay so I hope this is clear for example if you sell 100 shares okay and if you buy 120 shares now what is your net position net position is plus 20 then for

that additional 20 you may get the delivery of the shares but again we'll go into complications for this that what was your 120 order was it MIS order was it CNC order by the way CNC is cash-and-carry okay but we will not go into a mismatch quantity mismatch example because that will take again a bunch whole lot of time to explain this to simplify things will you get a delivery of the shares if you have sold first and bought later no if the net position is zero okay I hope this point is clear one last

point what if you sold at 150 okay stock hits an upper circuit I hope you know what is an upper circuit upper circuit is a scenario where the stock moves up let us say five percent okay so assume that the stock opened at 150 you sold at 150 the stock goes to 180 and it gets locked at 180 okay now what what happens at a per circuit there are all buyers but no sellers so I hope this point is clear a little bit quickly one more time okay so you're sold at what 150 what happened

the share price went up to 180 now the share is locked at an upper circuit what is an upper circuit all buyers but no sellers you are one of the buyers who is desperately you're dying to buy the share but there is no seller now what happens this is the point where your share gets auctioned okay now what is share auction is again a very big discussion but still I will try to cut it short okay share auction is nothing but now a scenario where you sold it but you are not able to buy it

neither at 3:00, 3:05, 3:10 nor at 3:20 also ok market closes at 3:30 still you have not bought back the position you have not squared off your position so tell me what what happens now was it - 100 yes was it +100 also no now what is the net quantity net quantity is still -100 now you have to buy it come what may and honor your contract but market has closed it is 3:30 now what happens is that your broker buys the shares on your behalf after 3:30 okay so there is a time slot after

3:30 for another half an hour we're only brokers are allowed to participate people like you and me retailers are not allowed to participate these guys would try to buy those hundred shares which were short and they'll buy it on my behalf okay so at whatever price they buy it let us say I'd sold it at 150 right and this guy buys it at 170 now now what is my loss my loss will be 20 rupees per share okay how did this take place this took place in a normal market or did it take place in

an auction market answer is it took place in an auction market okay this was a very short discussion on what is auction market it's a whole lot of a discussion if you want me to make a separate video on auction market of course you can let me know otherwise if you want to quickly know about it as I mentioned I have explained this completely in my basics of stock market lecture series so if you want you can go and check it out for sure okay Towards the end a very important announcement I hope you are

aware that we have started blogs on our website www.rachanaranade.com okay we have recently posted a blog on Reliance Industries so Reliance Industries JIO its investments okay so don't forget to check out the blog the link is there in the description box and one more very important point towards the end of the blog we are also putting certain promo codes for you all okay so don't forget to check out these blogs and those promo codes as well okay if you are liking my content don't forget to share these videos with your friends on Facebook Insta I

hope you are also aware about the telegram channel so take full advantage of all these other social media platforms as well to enhance your knowledge and to become more and more financially literate okay so that's it from my side guys Jai Hind and Bye bye