This time I am coming with the topic which most people don’t know while buying or selling shares in equity markets which if followed wisely can lead to even better returns on your money and that is known as short selling.

Short-selling: In simple terms, it is the practice where an investor sells shares that he\she does not own at the time of selling them, sounds strange but this is correct, this can be done. He/She sells them in the hope that the price of those shares will go down, and he/she will profit by buying back those shares at a lower price.
This is also know as covering.

When you will make loss when you short sell (Example) ?

For example your shorted a 1000 shares of company XYZ at price 12$ and it rose to 13$ , so your total loss would be 1000$, so if in case you short and stock prices move up you are in real big trouble, and you usally can’t take the delivery of it.

When you will make gain when you short sell (Example) ?

For example your shorted a 1000 shares of company XYZ at price 12$ and it went down to 11$ , and you bought again at 11$ your total gain would be of 1000$, so if in case you short and stock prices move down you are making money out of it.

Who usually do short selling ?

• Hedge Funds
• Large Institutions
• Traders
• Very High Net worth Individuals

What is the difference between covered short sales and naked short sales?

Naked short sales are those in which the seller does not intend to provide for the delivery of shares he\she has sold.
Covered short sales are those in which the seller arranges for the delivery of shares he\she has sold by borrowing them.

I hope you enjoyed this very short article on short selling.

Related posts:

1. What is Direct Selling
2. Cost Volume Profit Analysis and Its Assumptions
3. Bouns Shares – It is a sheer joy when you get it !