{"id":21140,"date":"2022-03-08T14:38:02","date_gmt":"2022-03-08T14:38:02","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=markets&#038;p=21140"},"modified":"2026-08-31T16:02:18","modified_gmt":"2026-08-31T10:32:18","slug":"all-about-shorting","status":"publish","type":"markets","link":"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/all-about-shorting\/","title":{"rendered":"All About Shorting"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"21140\" class=\"elementor elementor-21140\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-23ba90b elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\" data-id=\"23ba90b\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-b6a6f9f\" data-id=\"b6a6f9f\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-inner-section elementor-element elementor-element-e0f864e elementor-section-full_width elementor-section-height-default elementor-section-height-default\" data-id=\"e0f864e\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-wide\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-50 elementor-inner-column elementor-element elementor-element-7efb245 chapters_list\" data-id=\"7efb245\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-33d4575 elementor-widget elementor-widget-shortcode\" data-id=\"33d4575\" data-element_type=\"widget\" data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery(\"#post_chapters a[href*='\" + location.pathname + \"']\").addClass(\"current\");\n\t\t})\n\t<\/script>\n\t<div class=\"desktop_chapters\"><div id=\"post_chapters\"><div class=\"post_chapters-heading\">Chapters<\/div><ul><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/introduction-to-derivatives\/\">Introduction To Derivatives<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/derivatives-market\/\">Derivatives Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/forwards-contract\/\">Forwards Contract<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/futures-contract\/\">Futures Contract<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/the-futures-trade\/\">The Futures Trade<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/leverage-and-payoff\/\">Leverage and Payoff<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/margin-and-m2m\/\">Margin and M2M<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/margin-calculator\/\">Margin Calculator<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/all-about-shorting\/\">All About Shorting<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/the-nifty-futures\/\">The Nifty Futures<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/the-futures-pricing\/\">The Futures Pricing<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/hedging-with-futures\/\">Hedging With Futures<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/open-interest\/\">Open Interest<\/a><\/li><\/ul><\/div><\/div><div class=\"chapters_toggle\" title=\"chapters\"><a title=\"chapters\" href=\"#\" id=\"open_chapters\"><span>View Chapters<\/span>&nbsp;&nbsp;&nbsp;<i class=\"fa fa-chevron-right\"><\/i><\/a><a title=\"chapters\" href=\"#\" id=\"close_chapters\" style=\"display:none;\"><span>Hide Chapters<\/span>&nbsp;&nbsp;&nbsp;<i class=\"fa fa-chevron-right\"><\/i><\/a><\/div>\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery('.chapters_toggle #open_chapters').click(function(e){\n\t\t\t\te.preventDefault();\n\t\t\t\tjQuery('.desktop_chapters').css(\"left\",\"0px\");\n\t\t\t\tjQuery('#open_chapters').css(\"display\",\"none\");\n\t\t\t\tjQuery('#close_chapters').css(\"display\",\"block\");\n\t\t\t\t\/\/jQuery('.chapters_toggle').css(\"width\",\"200px\");\n\t\t\t})\n\t\t\tjQuery('.chapters_toggle 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          \n                                                            <span class=\"eael-tab-title title-after-icon\" >Videos<\/span>                            \n                                                    <\/li>\n                    \n                                  <\/ul>\n            <\/div>\n            \n            <div class=\"eael-tabs-content\">\n\t\t        \n                    <div id=\"study-tab\" class=\"clearfix eael-tab-content-item active-default\" data-title-link=\"study-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='Shorting-Made-Simple' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>9.1 Shorting Made Simple<\/strong><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-77065 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple.png\" alt=\"Shorting Made Simple\" width=\"940\" height=\"816\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple.png 940w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-300x260.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-768x667.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-50x43.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-100x87.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-150x130.png 150w\" sizes=\"(max-width: 940px) 100vw, 940px\" \/><\/p>\r\n<p>Most of us are familiar with the idea of buying first and then selling. whether it\u2019s a house or a share or even a cricket ticket. You buy it at one price, wait for it to go up, and then sell it for a profit. This logic of first buying and then selling is intuitive because it mirrors how we transact in our everyday life. But there&#8217;s another way to make money in the trading world that reverses this order: short selling, or just shorting.<\/p>\r\n<p>The opposite is shorting. You sell it first . Then you buy it later, hopefully cheaper . You don&#8217;t own it . You sell it at a price , you bought it at a price . The difference is the profit . It might seem strange at first, but the reasoning is straightforward: if you think a stock\u2019s price will fall, you make money by selling high now and buying low later.<\/p>\r\n<p>To put this in context, let\u2019s use a simple analogy. Imagine you and a friend are watching a tense India vs Australia cricket match. You are sure that India will win so you place a bet on their side. But your friend thinks Australia will win and places a bet against India. Win India, Win Cash. If India loses, your friend wins. Now imagine India is a stock. If the stock goes up you make money . Your bet is like going long . Your friends bet is like shorting , they will make money if the stock drops .<\/p>\r\n<p>That&#8217;s the whole point of shorting. It is a way of making a profit if prices fall. If a stock is overvalued or on the cusp of falling due to weak earnings, poor sentiment or macro factors you can short the stock. This way you sell the stock or futures contract first, then buy them back when the price drops.<\/p>\r\n<p>If you are new to this concept, do not worry. The mechanics are a bit strange at first, but become obvious with practice. The best way to get a feel for shorting is to try it out in a controlled environment, perhaps with a small intraday position and observe how the profit\/loss behaves as prices move.<\/p>\r\n<p>In the next few chapters we will look more closely at the rules, risks and strategies of short selling. You\u2019ll learn when to do it, how margins work and what to look for when betting against the market.<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Shorting-Stocks-in-the-Spot-Market' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.2 <strong><b>Shorting Stocks in the Spot Market<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77066 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market.png\" alt=\"Shorting in the spot market\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>Before we look at shorting in the futures market, it is useful to look at shorting in the spot market first. Let us take a trader looking at the daily chart of HCL Technologies. The chart shows a bearish Marubuzo candlestick pattern, with strong trading volumes, resistance at critical levels and confirming signals from technical indicators. The risk reward ratio is attractive and the trader expects the stock to drop 2% the next day based on this analysis. To take advantage of this expected move, the trader chooses to short the stock.<\/p>\r\n<p>Shorting is the opposite of the usual buy then sell later transaction. Here, the trader directly sells the stock at \u20b92,420 and intends to buy it back at a lower price later. In the trading platform, this is executed by placing a sell order for the required quantity. Once the trade is executed, the trader has gone short.<\/p>\r\n<p>Let us now discuss how profit and loss unfolds. Short is easy, the stock price should go down. If it does, the trader wins. If it goes up instead then the trade is a loss. Hence the importance of stoploss placement. In short trades the stoploss is always above the entry price, unlike with long trades where the stoploss is below the entry price. Here, the trader puts the stoploss at \u20b92,440 which is \u20b920 above the entry point.<\/p>\r\n<p><strong>To illustrate this, we can take two scenarios:<\/strong><\/p>\r\n<p><strong>Scenario 1<\/strong> \u2013 Price Falls to Target The stock falls to \u20b92,370 from \u20b92,420. The target is hit. The trader closes the position by buying back at the lower price . Because the position was opened by selling first . The profit is the difference between the buying and selling price, \u20b950 per share. This is equivalent to buying at Rs 2,370 and selling at Rs 2,420, only the order of transactions was reversed.<\/p>\r\n<p><strong>Scenario 2<\/strong> &#8211; Price moves to stoploss The stock instead of falling, rose to Rs 2,440. This triggers the stoploss and forces the trader to buy back at a higher price to avoid further losses. The loss here is \u20b920 per share, which is the short price minus the stoploss level. In normal buy-sell terms, it is the same as buying at Rs 2,440 and selling at Rs 2,420, which obviously results in a loss.<\/p>\r\n<p>These are the situations that define shorting\u2014you profit if prices fall, and you lose if they rise. The practice of setting a stoploss above the entry price is a discipline that helps limit losses in the event that the market moves against the trader\u2019s expectations.<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Shorting-in-Spot ' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.3 <strong><b>Shorting in Spot (The Exchange\u2019s Perspective)<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77067 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective.png\" alt=\"Shorting in Spot Exchange Perspective\" width=\"957\" height=\"687\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective.png 957w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-300x215.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-768x551.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-50x36.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-100x72.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-150x108.png 150w\" sizes=\"(max-width: 957px) 100vw, 957px\" \/><\/p>\r\n<p><strong><b>Definition: Spot\/Cash Market <\/b><\/strong><\/p>\r\n<p>The spot market, also known as the cash market, is a financial market where securities or commodities are bought and sold for immediate delivery and settlement. In this market, transactions are conducted at the prevailing market price, known as the spot price, and ownership is transferred instantly, typically within two working days (T+2 settlement cycle in India).<\/p>\r\n<p>Main Features:<\/p>\r\n<ul>\r\n<li>Instant settlement \u2013 buyer pays and receives the asset instantly.<\/li>\r\n<li>Real ownership: the investors have the full ownership of the asset (e.g. shares credited to DEMAT account).<\/li>\r\n<li>No expiry: Spot trades are not bound by contract duration unlike derivatives.<\/li>\r\n<li>Full capital required: Traders pay full value upfront; no leveraged or margin exposure.<\/li>\r\n<\/ul>\r\n<p>For example:<\/p>\r\n<p>If you buy 100 shares of HDFC Bank in the spot market at Rs 1,650, you will have to pay Rs 1,65,000 upfront. Your shares are credited to your DEMAT account within 2 days and can be held for lifetime.<\/p>\r\n<p>Shorting on the spot market has a very strict limitation, it can only be done on an intra-day basis. This means that you can open a short position at any time of the trading day but you must cover the short before the end of the trading day. You cannot carry a short position overnight. To understand why, it may be useful to look at how the stock exchange views short sales.<\/p>\r\n<p>When you short a stock in the spot market, you sell first. And once you place that sell order, the exchange systems record the transaction as a sale of shares. Importantly, the exchange doesn\u2019t differentiate between a normal sale (where you actually own the shares in your DEMAT account) and a short sale (where you don\u2019t). From their standpoint you sold shares and therefore you have to deliver them. Delivery obligations are only checked after the market closes, not during trading hours.<\/p>\r\n<p>Now imagine this. A trader shorts Reliance Industries at Rs 2,450, hoping to see the price fall. But the decline does not happen and the trader decides to hold on, waiting for a drop the next day. The exchange noted that the trader sold Reliance shares at the end of the trading session. The trader does not have the shares in his DEMAT account and hence cannot fulfil the delivery obligation. This leads to what is called a short delivery.<\/p>\r\n<p>In a short delivery situation , the exchange steps in and settles in the auction market . Defaulting traders pay stiff penalties that can be as high as 20% above the short price. For example, if the short was at \u20b92,450, the settlement cost could be \u20b92,940 or more, depending on the penalty. That makes a short delivery very expensive mistake. The moral of the story is simple though, always close your shorts before the market closes or you will be penalised.<\/p>\r\n<p>Note that the exchange only audits for delivery obligations after trading hours. That means if you close your short position out during the day by buying the shares back you eliminate the obligation altogether. That is why the spot market short is an intraday only thing.<\/p>\r\n<p>Does this mean that all short positions must be closed the same day? Not always. Shorts cannot be rolled over in the spot market, but shorts in the futures market can be carried overnight and even until expiry. They are also structured differently . The exchange recognises futures contracts as valid instruments to carry forward short trades .<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Shorting-in-the-Futures-Market-M2M-Example' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.4 <strong><b>Shorting in the Futures Market<\/b><\/strong><strong><b>\u00a0M2M Example<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77068 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market-.png\" alt=\"Shorting in Futures Market\" width=\"1027\" height=\"1087\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market-.png 1027w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--283x300.png 283w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--967x1024.png 967w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--768x813.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--47x50.png 47w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--94x100.png 94w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--150x159.png 150w\" sizes=\"(max-width: 1027px) 100vw, 1027px\" \/><\/p>\r\n<p>Futures segment shorting is far more flexible than shorting in the spot market. Short sales in the spot market must be covered on the same trading day, while futures contracts allow traders to hold positions overnight and even till expiry. That\u2019s one of the reasons why futures trading is so popular. Futures are derivatives and simply track the performance of the underlying stock. If the underlying stock price goes down, the futures contract will also go down. That makes futures a good instrument for traders that are bearish on a stock and want to make money from its move down.<\/p>\r\n<p>You need margin to go short in futures . Like you need a margin deposit to go long in futures . The margin rules are the same for long and short positions and are unaffected by direction. However what does change is the profit and loss calculation which is marked to market (M2M) daily.<\/p>\r\n<p>Let\u2019s go through an example. For example, let\u2019s say a trader sells Infosys futures at \u20b91,520 and the lot size is 300. The following table shows how the closing prices move over the next few days and how the M2M adjustments work out.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Day<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p><strong><b>Reference Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p><strong><b>Closing Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p><strong><b>P&amp;L for the Day<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>01 (Initiate short)<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1520<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1512<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1520 \u2013 1512) \u00d7 300 = \u20b92,400<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>02<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1512<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1505<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1512 \u2013 1505) \u00d7 300 = \u20b92,100<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>03<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1505<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1510<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1505 \u2013 1510) \u00d7 300 = \u2013\u20b91,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>04<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1510<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1518<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1510 \u2013 1518) \u00d7 300 = \u2013\u20b92,400<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>05<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1518<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1498<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1518 \u2013 1498) \u00d7 300 = \u20b96,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>06 (Square off)<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1498<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1492<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1498 \u2013 1492) \u00d7 300 = \u20b91,800<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>&nbsp;<\/p>\r\n<p>Now, let\u2019s add up the daily M2M values: +2,400 +2,100 \u20131,500 \u20132,400 +6,000 +1,800 = \u20b98,400 profit<\/p>\r\n<p>Alternatively, you can calculate directly from the entry and exit prices: (Selling Price \u2013 Buying Price) \u00d7 Lot Size = (1520 \u2013 1492) \u00d7 300 = 28 \u00d7 300 = \u20b98,400<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77072 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L-.png\" alt=\"Daily M2M P&amp; L\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L-.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Total Contract Value:<\/b><\/strong>\u20b91.2 crore<\/li>\r\n<li><b><\/b><strong><b>Buyer:<\/b><\/strong>NovaTech Electronics (locks in price to avoid future hikes)<\/li>\r\n<li><b><\/b><strong><b>Seller:<\/b><\/strong>PowerCell Traders (secures today\u2019s higher price to avoid future declines)<\/li>\r\n<li><b><\/b><strong><b>Type:<\/b><\/strong>Over-the-Counter (OTC) forward contract<\/li>\r\n<\/ul>\r\n<p><strong><b>What the Chart Shows<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Day 1 &amp; 2:<\/b><\/strong>Price falls \u2192 Trader earns \u20b92,400 and \u20b92,100<\/li>\r\n<li><b><\/b><strong><b>Day 3 &amp; 4:<\/b><\/strong>Price rises \u2192 Trader loses \u20b91,500 and \u20b92,400<\/li>\r\n<li><b><\/b><strong><b>Day 5 &amp; 6:<\/b><\/strong>Price drops sharply \u2192 Trader gains \u20b96,000 and \u20b91,800\u00a0<\/li>\r\n<\/ul>\r\n<p><strong><b>Total Profit:<\/b><\/strong>\u00a0\u20b98,400<\/p>\r\n<p>\u00a0<strong><b>Lot Size:<\/b><\/strong>\u00a0300 shares<\/p>\r\n<p><strong><b>Short Price:<\/b><\/strong>\u00a0\u20b91,520<\/p>\r\n<p>\u00a0<strong><b>Exit Price:<\/b><\/strong>\u00a0\u20b91,492<\/p>\r\n<p>This example demonstrates that shorting futures is virtually the same as going long, except that profits only occur when prices drop. Same margin requirement and M2M process going one way or the other.<\/p>\r\n<p>Shorting is a critical skill for active traders. Markets don\u2019t always go up, and being able to profit from falling prices is just as important as riding bullish trends. The more you get used to starting short trades, the more versatile and balanced your trading approach will become.<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Shorting-Risk-What\u2019s-The-Downside' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.5 <strong><b>Shorting Risk: What\u2019s The Downside?<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77069 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting.png\" alt=\"Risks of Spot Shorting\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Short selling, or \u201cshorting,\u201d involves a trader selling an asset they do not own, betting the asset will decline in price so they can later buy it back at a lower price. This can be profitable in declining markets, but has a unique and potentially dangerous risk profile, particularly in the spot market.<\/p>\r\n<p><strong><b>The losses can be unlimited.<\/b><\/strong><\/p>\r\n<p>When you buy a stock, your maximum loss is limited to your investment. If the stock goes to zero you lose your capital. But nothing else. On the other hand, if you short a stock, you can lose unlimited amounts. That\u2019s because there\u2019s no limit to how high a stock price can go. Now if the price starts moving against your short, you are forced to buy back at a higher price and the loss keeps increasing as the price goes up.<\/p>\r\n<p>Suppose you short Infosys at 1500, expecting it to fall Instead it jumps to \u20b91,600. Now you have a loss of Rs 100 per share. If it goes up to \u20b91,700 or \u20b91,800, your losses will go up. There is no ceiling, your margin and risk controls are the limit of your losses.<\/p>\r\n<p><strong><b>Margin Calls and Liquidations<\/b><\/strong><\/p>\r\n<p>To protect themselves against this risk, brokers require margin deposits and constantly monitor your position. If the loss is greater than your margin, you will receive a margin call, a request for a deposit. Otherwise, the broker may forcibly square off your position to prevent more loss. This is especially true in futures where margin systems are tightly regulated.<\/p>\r\n<p><strong><b>Spot Market Shorting \u2013 Only Intraday<\/b><\/strong><\/p>\r\n<p>Short selling in Indian spot market is allowed only on intraday basis. You need to flatten out the position before the market closes. If that does not happen, the delivery is short and can be penalised by as much as 20% over the short price. This rule is meant to avoid delivery failures and limit systemic risk.<\/p>\r\n<p><strong><b>Shorting Futures \u2013 Overnight is Allowed but Risky<\/b><\/strong><\/p>\r\n<p>Short positions can be held overnight in the futures market. This gives traders more flexibility, but also exposes them to overnight news, gaps and volatility. Sudden good news or policy shifts can cause sharp moves upwards and heavy losses to short sellers.<\/p><\/div>\n<div id='text_slider_slide06' class='sa_hover_container' data-hash='Comparing-Spot-vs-Futures-Shorting' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.6 <strong><b>Comparing Spot vs Futures Shorting: Risk, Constraints, and P&amp;L Behavior<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77070 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting.png\" alt=\"Comparing Spot vs Futures Shorting\" width=\"1071\" height=\"852\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting.png 1071w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-300x239.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-1024x815.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-768x611.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-50x40.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-100x80.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-150x119.png 150w\" sizes=\"(max-width: 1071px) 100vw, 1071px\" \/><\/p>\r\n<p>Shorting is a powerful tool for those traders who expect prices to fall. But the mechanics and the risk profiles of the spot market versus the futures market are quite different. Understanding these differences is important in choosing the right instrument and effectively managing risk.<\/p>\r\n<p><strong><b>Spot Shorting Intraday<\/b><\/strong><\/p>\r\n<p>Shorting in the spot market is strictly limited to intraday trades. Must fill the position prior to market close. That\u2019s because the exchange expects shares to be delivered after the trading session. If you don&#8217;t have the shares, and you don&#8217;t buy the shares back by the end of the day, it is a short delivery, and there are steep penalties for this, sometimes up to 20% above the short price.<\/p>\r\n<ul>\r\n<li>Constraint: Must close squares before market close<\/li>\r\n<li>Risk: Risk of penalty in respect of auction settlement<\/li>\r\n<li>Use Case: Tactical intraday trades on technical set-up<\/li>\r\n<\/ul>\r\n<p><strong><b>Futures Shorting: Allowed Overnight<\/b><\/strong><\/p>\r\n<p>Futures, on the other hand, allows for the carrying of short positions overnight and even to expiry. This flexibility makes futures a good choice for taking short positions over several days. But it also has overnight risk\u2014the risk that bad news or events could cause a sharp spike in price before the next trading session.<\/p>\r\n<ul>\r\n<li>Constraint: No delivery requirement; position can be held overnight<\/li>\r\n<li>Risk: Gap risk, news flow and volatility overnight.<\/li>\r\n<li>Use Case: Swing trading, event-driven hedging, or directional trades<\/li>\r\n<\/ul>\r\n<p>Profit and Loss Behaviour Short Position P&amp;L<\/p>\r\n<p><strong><b> <img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-77071 aligncenter\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-300x300.png\" alt=\"Profit and Loss\" width=\"300\" height=\"300\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-96x96.png 96w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss.png 1080w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><\/b><\/strong><\/p>\r\n<p>Shorting is profitable when prices decline and loss-making when prices rise. The P&amp;L curve for a short position is the mirror image of a long position.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Price Movement<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Short Position Outcome<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Price falls<\/p>\r\n<\/td>\r\n<td>\r\n<p>Profit<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Price rises<\/p>\r\n<\/td>\r\n<td>\r\n<p>Loss<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Price flat<\/p>\r\n<\/td>\r\n<td>\r\n<p>No profit\/loss<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>In short trades, the stoploss is always placed above the entry price, because rising prices hurt the short seller. This is the opposite of long trades, where the stoploss is placed below the entry.<\/p><\/div>\n<div id='text_slider_slide07' class='sa_hover_container' data-hash='Key-Takeaways' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.7 <strong><b>Key Takeaways<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-76118 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png\" alt=\"Key Takeaways\" width=\"444\" height=\"418\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png 444w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-300x282.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-50x47.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-100x94.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-150x141.png 150w\" sizes=\"(max-width: 444px) 100vw, 444px\" \/><\/p>\r\n<ol>\r\n<li>Shorting reverses the buy-sell logic. Traders sell first and buy back later at lower price to make profit. They don\u2019t buy up front.<\/li>\r\n<li>You make money when prices go down: If you think a stock is going to go down because of weak earnings, sentiment or macro \u2013 shorting is a great way to make money.<\/li>\r\n<li>Placing critical stop-losses In short trades, stoploss is always put above entry price to limit losses if stock moves up.<\/li>\r\n<li>Shorting in the spot market is intraday only: You have to square off your short positions before the market closes. If you take them forward you may be penalised.<\/li>\r\n<li>Short delivery has draconian penalties: If you don\u2019t buy the shares back by the close of business, the exchange settles via auction, usually at a punitive price (up to 20% more).<\/li>\r\n<li>Futures allow overnight shorting Unlike spot trading, futures contracts allow short positions to be held overnight and until expiry.<\/li>\r\n<li>Long and short futures have equal margin. Deposits are required on both sides of the bet. Bullish or bearish, rules are rules.<\/li>\r\n<li>Mark-to-market (M2M) Profits \/ losses on short futures and long position are marked-to-market daily.<\/li>\r\n<li>Shorting Balances Trading Style. Markets do not always go up. Traders become flexible and resilient when they can make money in bear markets.<\/li>\r\n<li>Risk management is not optional: Margins, stop-losses and discipline are the key guardrails to prevent small mistakes turning into big losses.<\/li>\r\n<\/ol><\/div>\n<div id='text_slider_slide08' class='sa_hover_container' data-hash='Fun-Activity' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.8 <strong><b>Fun Activity<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77015 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1.png\" alt=\"Fun Activity\" width=\"867\" height=\"1033\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1.png 867w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-252x300.png 252w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-859x1024.png 859w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-768x915.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-42x50.png 42w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-84x100.png 84w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-150x179.png 150w\" sizes=\"(max-width: 867px) 100vw, 867px\" \/><\/p>\r\n<p>\u00a0You decide to short Infosys Futures at \u20b91,520 with a lot size of 300 shares.<\/p>\r\n<p>Try to calculate your profit or loss in each case below:<\/p>\r\n<ol>\r\n<li>Price falls to \u20b91,500<\/li>\r\n<li>Price rises to \u20b91,540<\/li>\r\n<li>Price stays flat at \u20b91,520<\/li>\r\n<\/ol>\r\n<p><strong><b>Formula : <\/b><\/strong>(Sell Price-Buy Price)*Lot Size<\/p>\r\n<p><strong><b>Answers<\/b><\/strong><\/p>\r\n<ol>\r\n<li>\u20b91,520 \u2013 \u20b91,500 = \u20b920 \u00d7 300 = \u20b96,000 profit<\/li>\r\n<li>\u20b91,520 \u2013 \u20b91,540 = \u2013\u20b920 \u00d7 300 = \u20b96,000 loss<\/li>\r\n<li>\u20b91,520 \u2013 \u20b91,520 = \u20b90 \u00d7 300 = No profit\/loss<\/li>\r\n<\/ol>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tjQuery('.text_slider_goto6').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 5);\n\t\t});\n\t\tjQuery('.text_slider_goto7').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 6);\n\t\t});\n\t\tjQuery('.text_slider_goto8').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 7);\n\t\t});\n\t\tvar resize_76850 = jQuery('.owl-carousel');\n\t\tresize_76850.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p>                    <\/div>\n\t\t        \n                    <div id=\"slides-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"slides-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='Shorting-Made-Simple' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>9.1 Shorting Made Simple<\/strong><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-77065 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple.png\" alt=\"Shorting Made Simple\" width=\"940\" height=\"816\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple.png 940w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-300x260.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-768x667.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-50x43.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-100x87.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-Made-Simple-150x130.png 150w\" sizes=\"(max-width: 940px) 100vw, 940px\" \/><\/p>\r\n<p>Most of us are familiar with the idea of buying first and then selling. whether it\u2019s a house or a share or even a cricket ticket. You buy it at one price, wait for it to go up, and then sell it for a profit. This logic of first buying and then selling is intuitive because it mirrors how we transact in our everyday life. But there&#8217;s another way to make money in the trading world that reverses this order: short selling, or just shorting.<\/p>\r\n<p>The opposite is shorting. You sell it first . Then you buy it later, hopefully cheaper . You don&#8217;t own it . You sell it at a price , you bought it at a price . The difference is the profit . It might seem strange at first, but the reasoning is straightforward: if you think a stock\u2019s price will fall, you make money by selling high now and buying low later.<\/p>\r\n<p>To put this in context, let\u2019s use a simple analogy. Imagine you and a friend are watching a tense India vs Australia cricket match. You are sure that India will win so you place a bet on their side. But your friend thinks Australia will win and places a bet against India. Win India, Win Cash. If India loses, your friend wins. Now imagine India is a stock. If the stock goes up you make money . Your bet is like going long . Your friends bet is like shorting , they will make money if the stock drops .<\/p>\r\n<p>That&#8217;s the whole point of shorting. It is a way of making a profit if prices fall. If a stock is overvalued or on the cusp of falling due to weak earnings, poor sentiment or macro factors you can short the stock. This way you sell the stock or futures contract first, then buy them back when the price drops.<\/p>\r\n<p>If you are new to this concept, do not worry. The mechanics are a bit strange at first, but become obvious with practice. The best way to get a feel for shorting is to try it out in a controlled environment, perhaps with a small intraday position and observe how the profit\/loss behaves as prices move.<\/p>\r\n<p>In the next few chapters we will look more closely at the rules, risks and strategies of short selling. You\u2019ll learn when to do it, how margins work and what to look for when betting against the market.<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Shorting-Stocks-in-the-Spot-Market' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.2 <strong><b>Shorting Stocks in the Spot Market<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77066 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market.png\" alt=\"Shorting in the spot market\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-the-spot-market-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>Before we look at shorting in the futures market, it is useful to look at shorting in the spot market first. Let us take a trader looking at the daily chart of HCL Technologies. The chart shows a bearish Marubuzo candlestick pattern, with strong trading volumes, resistance at critical levels and confirming signals from technical indicators. The risk reward ratio is attractive and the trader expects the stock to drop 2% the next day based on this analysis. To take advantage of this expected move, the trader chooses to short the stock.<\/p>\r\n<p>Shorting is the opposite of the usual buy then sell later transaction. Here, the trader directly sells the stock at \u20b92,420 and intends to buy it back at a lower price later. In the trading platform, this is executed by placing a sell order for the required quantity. Once the trade is executed, the trader has gone short.<\/p>\r\n<p>Let us now discuss how profit and loss unfolds. Short is easy, the stock price should go down. If it does, the trader wins. If it goes up instead then the trade is a loss. Hence the importance of stoploss placement. In short trades the stoploss is always above the entry price, unlike with long trades where the stoploss is below the entry price. Here, the trader puts the stoploss at \u20b92,440 which is \u20b920 above the entry point.<\/p>\r\n<p><strong>To illustrate this, we can take two scenarios:<\/strong><\/p>\r\n<p><strong>Scenario 1<\/strong> \u2013 Price Falls to Target The stock falls to \u20b92,370 from \u20b92,420. The target is hit. The trader closes the position by buying back at the lower price . Because the position was opened by selling first . The profit is the difference between the buying and selling price, \u20b950 per share. This is equivalent to buying at Rs 2,370 and selling at Rs 2,420, only the order of transactions was reversed.<\/p>\r\n<p><strong>Scenario 2<\/strong> &#8211; Price moves to stoploss The stock instead of falling, rose to Rs 2,440. This triggers the stoploss and forces the trader to buy back at a higher price to avoid further losses. The loss here is \u20b920 per share, which is the short price minus the stoploss level. In normal buy-sell terms, it is the same as buying at Rs 2,440 and selling at Rs 2,420, which obviously results in a loss.<\/p>\r\n<p>These are the situations that define shorting\u2014you profit if prices fall, and you lose if they rise. The practice of setting a stoploss above the entry price is a discipline that helps limit losses in the event that the market moves against the trader\u2019s expectations.<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Shorting-in-Spot ' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.3 <strong><b>Shorting in Spot (The Exchange\u2019s Perspective)<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77067 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective.png\" alt=\"Shorting in Spot Exchange Perspective\" width=\"957\" height=\"687\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective.png 957w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-300x215.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-768x551.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-50x36.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-100x72.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Spot-Exchange-Perspective-150x108.png 150w\" sizes=\"(max-width: 957px) 100vw, 957px\" \/><\/p>\r\n<p><strong><b>Definition: Spot\/Cash Market <\/b><\/strong><\/p>\r\n<p>The spot market, also known as the cash market, is a financial market where securities or commodities are bought and sold for immediate delivery and settlement. In this market, transactions are conducted at the prevailing market price, known as the spot price, and ownership is transferred instantly, typically within two working days (T+2 settlement cycle in India).<\/p>\r\n<p>Main Features:<\/p>\r\n<ul>\r\n<li>Instant settlement \u2013 buyer pays and receives the asset instantly.<\/li>\r\n<li>Real ownership: the investors have the full ownership of the asset (e.g. shares credited to DEMAT account).<\/li>\r\n<li>No expiry: Spot trades are not bound by contract duration unlike derivatives.<\/li>\r\n<li>Full capital required: Traders pay full value upfront; no leveraged or margin exposure.<\/li>\r\n<\/ul>\r\n<p>For example:<\/p>\r\n<p>If you buy 100 shares of HDFC Bank in the spot market at Rs 1,650, you will have to pay Rs 1,65,000 upfront. Your shares are credited to your DEMAT account within 2 days and can be held for lifetime.<\/p>\r\n<p>Shorting on the spot market has a very strict limitation, it can only be done on an intra-day basis. This means that you can open a short position at any time of the trading day but you must cover the short before the end of the trading day. You cannot carry a short position overnight. To understand why, it may be useful to look at how the stock exchange views short sales.<\/p>\r\n<p>When you short a stock in the spot market, you sell first. And once you place that sell order, the exchange systems record the transaction as a sale of shares. Importantly, the exchange doesn\u2019t differentiate between a normal sale (where you actually own the shares in your DEMAT account) and a short sale (where you don\u2019t). From their standpoint you sold shares and therefore you have to deliver them. Delivery obligations are only checked after the market closes, not during trading hours.<\/p>\r\n<p>Now imagine this. A trader shorts Reliance Industries at Rs 2,450, hoping to see the price fall. But the decline does not happen and the trader decides to hold on, waiting for a drop the next day. The exchange noted that the trader sold Reliance shares at the end of the trading session. The trader does not have the shares in his DEMAT account and hence cannot fulfil the delivery obligation. This leads to what is called a short delivery.<\/p>\r\n<p>In a short delivery situation , the exchange steps in and settles in the auction market . Defaulting traders pay stiff penalties that can be as high as 20% above the short price. For example, if the short was at \u20b92,450, the settlement cost could be \u20b92,940 or more, depending on the penalty. That makes a short delivery very expensive mistake. The moral of the story is simple though, always close your shorts before the market closes or you will be penalised.<\/p>\r\n<p>Note that the exchange only audits for delivery obligations after trading hours. That means if you close your short position out during the day by buying the shares back you eliminate the obligation altogether. That is why the spot market short is an intraday only thing.<\/p>\r\n<p>Does this mean that all short positions must be closed the same day? Not always. Shorts cannot be rolled over in the spot market, but shorts in the futures market can be carried overnight and even until expiry. They are also structured differently . The exchange recognises futures contracts as valid instruments to carry forward short trades .<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Shorting-in-the-Futures-Market-M2M-Example' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.4 <strong><b>Shorting in the Futures Market<\/b><\/strong><strong><b>\u00a0M2M Example<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77068 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market-.png\" alt=\"Shorting in Futures Market\" width=\"1027\" height=\"1087\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market-.png 1027w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--283x300.png 283w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--967x1024.png 967w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--768x813.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--47x50.png 47w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--94x100.png 94w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Shorting-in-Futures-Market--150x159.png 150w\" sizes=\"(max-width: 1027px) 100vw, 1027px\" \/><\/p>\r\n<p>Futures segment shorting is far more flexible than shorting in the spot market. Short sales in the spot market must be covered on the same trading day, while futures contracts allow traders to hold positions overnight and even till expiry. That\u2019s one of the reasons why futures trading is so popular. Futures are derivatives and simply track the performance of the underlying stock. If the underlying stock price goes down, the futures contract will also go down. That makes futures a good instrument for traders that are bearish on a stock and want to make money from its move down.<\/p>\r\n<p>You need margin to go short in futures . Like you need a margin deposit to go long in futures . The margin rules are the same for long and short positions and are unaffected by direction. However what does change is the profit and loss calculation which is marked to market (M2M) daily.<\/p>\r\n<p>Let\u2019s go through an example. For example, let\u2019s say a trader sells Infosys futures at \u20b91,520 and the lot size is 300. The following table shows how the closing prices move over the next few days and how the M2M adjustments work out.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Day<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p><strong><b>Reference Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p><strong><b>Closing Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p><strong><b>P&amp;L for the Day<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>01 (Initiate short)<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1520<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1512<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1520 \u2013 1512) \u00d7 300 = \u20b92,400<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>02<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1512<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1505<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1512 \u2013 1505) \u00d7 300 = \u20b92,100<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>03<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1505<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1510<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1505 \u2013 1510) \u00d7 300 = \u2013\u20b91,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>04<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1510<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1518<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1510 \u2013 1518) \u00d7 300 = \u2013\u20b92,400<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>05<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1518<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1498<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1518 \u2013 1498) \u00d7 300 = \u20b96,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>06 (Square off)<\/p>\r\n<\/td>\r\n<td width=\"183\">\r\n<p>1498<\/p>\r\n<\/td>\r\n<td width=\"112\">\r\n<p>1492<\/p>\r\n<\/td>\r\n<td width=\"418\">\r\n<p>(1498 \u2013 1492) \u00d7 300 = \u20b91,800<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>&nbsp;<\/p>\r\n<p>Now, let\u2019s add up the daily M2M values: +2,400 +2,100 \u20131,500 \u20132,400 +6,000 +1,800 = \u20b98,400 profit<\/p>\r\n<p>Alternatively, you can calculate directly from the entry and exit prices: (Selling Price \u2013 Buying Price) \u00d7 Lot Size = (1520 \u2013 1492) \u00d7 300 = 28 \u00d7 300 = \u20b98,400<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77072 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L-.png\" alt=\"Daily M2M P&amp; L\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L-.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Daily-M2M-P-L--96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Total Contract Value:<\/b><\/strong>\u20b91.2 crore<\/li>\r\n<li><b><\/b><strong><b>Buyer:<\/b><\/strong>NovaTech Electronics (locks in price to avoid future hikes)<\/li>\r\n<li><b><\/b><strong><b>Seller:<\/b><\/strong>PowerCell Traders (secures today\u2019s higher price to avoid future declines)<\/li>\r\n<li><b><\/b><strong><b>Type:<\/b><\/strong>Over-the-Counter (OTC) forward contract<\/li>\r\n<\/ul>\r\n<p><strong><b>What the Chart Shows<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Day 1 &amp; 2:<\/b><\/strong>Price falls \u2192 Trader earns \u20b92,400 and \u20b92,100<\/li>\r\n<li><b><\/b><strong><b>Day 3 &amp; 4:<\/b><\/strong>Price rises \u2192 Trader loses \u20b91,500 and \u20b92,400<\/li>\r\n<li><b><\/b><strong><b>Day 5 &amp; 6:<\/b><\/strong>Price drops sharply \u2192 Trader gains \u20b96,000 and \u20b91,800\u00a0<\/li>\r\n<\/ul>\r\n<p><strong><b>Total Profit:<\/b><\/strong>\u00a0\u20b98,400<\/p>\r\n<p>\u00a0<strong><b>Lot Size:<\/b><\/strong>\u00a0300 shares<\/p>\r\n<p><strong><b>Short Price:<\/b><\/strong>\u00a0\u20b91,520<\/p>\r\n<p>\u00a0<strong><b>Exit Price:<\/b><\/strong>\u00a0\u20b91,492<\/p>\r\n<p>This example demonstrates that shorting futures is virtually the same as going long, except that profits only occur when prices drop. Same margin requirement and M2M process going one way or the other.<\/p>\r\n<p>Shorting is a critical skill for active traders. Markets don\u2019t always go up, and being able to profit from falling prices is just as important as riding bullish trends. The more you get used to starting short trades, the more versatile and balanced your trading approach will become.<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Shorting-Risk-What\u2019s-The-Downside' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.5 <strong><b>Shorting Risk: What\u2019s The Downside?<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77069 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting.png\" alt=\"Risks of Spot Shorting\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Risks-of-Spot-Shorting-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Short selling, or \u201cshorting,\u201d involves a trader selling an asset they do not own, betting the asset will decline in price so they can later buy it back at a lower price. This can be profitable in declining markets, but has a unique and potentially dangerous risk profile, particularly in the spot market.<\/p>\r\n<p><strong><b>The losses can be unlimited.<\/b><\/strong><\/p>\r\n<p>When you buy a stock, your maximum loss is limited to your investment. If the stock goes to zero you lose your capital. But nothing else. On the other hand, if you short a stock, you can lose unlimited amounts. That\u2019s because there\u2019s no limit to how high a stock price can go. Now if the price starts moving against your short, you are forced to buy back at a higher price and the loss keeps increasing as the price goes up.<\/p>\r\n<p>Suppose you short Infosys at 1500, expecting it to fall Instead it jumps to \u20b91,600. Now you have a loss of Rs 100 per share. If it goes up to \u20b91,700 or \u20b91,800, your losses will go up. There is no ceiling, your margin and risk controls are the limit of your losses.<\/p>\r\n<p><strong><b>Margin Calls and Liquidations<\/b><\/strong><\/p>\r\n<p>To protect themselves against this risk, brokers require margin deposits and constantly monitor your position. If the loss is greater than your margin, you will receive a margin call, a request for a deposit. Otherwise, the broker may forcibly square off your position to prevent more loss. This is especially true in futures where margin systems are tightly regulated.<\/p>\r\n<p><strong><b>Spot Market Shorting \u2013 Only Intraday<\/b><\/strong><\/p>\r\n<p>Short selling in Indian spot market is allowed only on intraday basis. You need to flatten out the position before the market closes. If that does not happen, the delivery is short and can be penalised by as much as 20% over the short price. This rule is meant to avoid delivery failures and limit systemic risk.<\/p>\r\n<p><strong><b>Shorting Futures \u2013 Overnight is Allowed but Risky<\/b><\/strong><\/p>\r\n<p>Short positions can be held overnight in the futures market. This gives traders more flexibility, but also exposes them to overnight news, gaps and volatility. Sudden good news or policy shifts can cause sharp moves upwards and heavy losses to short sellers.<\/p><\/div>\n<div id='text_slider_slide06' class='sa_hover_container' data-hash='Comparing-Spot-vs-Futures-Shorting' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.6 <strong><b>Comparing Spot vs Futures Shorting: Risk, Constraints, and P&amp;L Behavior<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77070 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting.png\" alt=\"Comparing Spot vs Futures Shorting\" width=\"1071\" height=\"852\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting.png 1071w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-300x239.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-1024x815.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-768x611.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-50x40.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-100x80.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Comparing-Spot-vs-Futures-Shorting-150x119.png 150w\" sizes=\"(max-width: 1071px) 100vw, 1071px\" \/><\/p>\r\n<p>Shorting is a powerful tool for those traders who expect prices to fall. But the mechanics and the risk profiles of the spot market versus the futures market are quite different. Understanding these differences is important in choosing the right instrument and effectively managing risk.<\/p>\r\n<p><strong><b>Spot Shorting Intraday<\/b><\/strong><\/p>\r\n<p>Shorting in the spot market is strictly limited to intraday trades. Must fill the position prior to market close. That\u2019s because the exchange expects shares to be delivered after the trading session. If you don&#8217;t have the shares, and you don&#8217;t buy the shares back by the end of the day, it is a short delivery, and there are steep penalties for this, sometimes up to 20% above the short price.<\/p>\r\n<ul>\r\n<li>Constraint: Must close squares before market close<\/li>\r\n<li>Risk: Risk of penalty in respect of auction settlement<\/li>\r\n<li>Use Case: Tactical intraday trades on technical set-up<\/li>\r\n<\/ul>\r\n<p><strong><b>Futures Shorting: Allowed Overnight<\/b><\/strong><\/p>\r\n<p>Futures, on the other hand, allows for the carrying of short positions overnight and even to expiry. This flexibility makes futures a good choice for taking short positions over several days. But it also has overnight risk\u2014the risk that bad news or events could cause a sharp spike in price before the next trading session.<\/p>\r\n<ul>\r\n<li>Constraint: No delivery requirement; position can be held overnight<\/li>\r\n<li>Risk: Gap risk, news flow and volatility overnight.<\/li>\r\n<li>Use Case: Swing trading, event-driven hedging, or directional trades<\/li>\r\n<\/ul>\r\n<p>Profit and Loss Behaviour Short Position P&amp;L<\/p>\r\n<p><strong><b> <img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-77071 aligncenter\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-300x300.png\" alt=\"Profit and Loss\" width=\"300\" height=\"300\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss-96x96.png 96w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Profit-and-Loss.png 1080w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><\/b><\/strong><\/p>\r\n<p>Shorting is profitable when prices decline and loss-making when prices rise. The P&amp;L curve for a short position is the mirror image of a long position.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Price Movement<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Short Position Outcome<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Price falls<\/p>\r\n<\/td>\r\n<td>\r\n<p>Profit<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Price rises<\/p>\r\n<\/td>\r\n<td>\r\n<p>Loss<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Price flat<\/p>\r\n<\/td>\r\n<td>\r\n<p>No profit\/loss<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>In short trades, the stoploss is always placed above the entry price, because rising prices hurt the short seller. This is the opposite of long trades, where the stoploss is placed below the entry.<\/p><\/div>\n<div id='text_slider_slide07' class='sa_hover_container' data-hash='Key-Takeaways' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.7 <strong><b>Key Takeaways<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-76118 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png\" alt=\"Key Takeaways\" width=\"444\" height=\"418\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png 444w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-300x282.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-50x47.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-100x94.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-150x141.png 150w\" sizes=\"(max-width: 444px) 100vw, 444px\" \/><\/p>\r\n<ol>\r\n<li>Shorting reverses the buy-sell logic. Traders sell first and buy back later at lower price to make profit. They don\u2019t buy up front.<\/li>\r\n<li>You make money when prices go down: If you think a stock is going to go down because of weak earnings, sentiment or macro \u2013 shorting is a great way to make money.<\/li>\r\n<li>Placing critical stop-losses In short trades, stoploss is always put above entry price to limit losses if stock moves up.<\/li>\r\n<li>Shorting in the spot market is intraday only: You have to square off your short positions before the market closes. If you take them forward you may be penalised.<\/li>\r\n<li>Short delivery has draconian penalties: If you don\u2019t buy the shares back by the close of business, the exchange settles via auction, usually at a punitive price (up to 20% more).<\/li>\r\n<li>Futures allow overnight shorting Unlike spot trading, futures contracts allow short positions to be held overnight and until expiry.<\/li>\r\n<li>Long and short futures have equal margin. Deposits are required on both sides of the bet. Bullish or bearish, rules are rules.<\/li>\r\n<li>Mark-to-market (M2M) Profits \/ losses on short futures and long position are marked-to-market daily.<\/li>\r\n<li>Shorting Balances Trading Style. Markets do not always go up. Traders become flexible and resilient when they can make money in bear markets.<\/li>\r\n<li>Risk management is not optional: Margins, stop-losses and discipline are the key guardrails to prevent small mistakes turning into big losses.<\/li>\r\n<\/ol><\/div>\n<div id='text_slider_slide08' class='sa_hover_container' data-hash='Fun-Activity' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2>9.8 <strong><b>Fun Activity<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77015 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1.png\" alt=\"Fun Activity\" width=\"867\" height=\"1033\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1.png 867w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-252x300.png 252w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-859x1024.png 859w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-768x915.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-42x50.png 42w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-84x100.png 84w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-150x179.png 150w\" sizes=\"(max-width: 867px) 100vw, 867px\" \/><\/p>\r\n<p>\u00a0You decide to short Infosys Futures at \u20b91,520 with a lot size of 300 shares.<\/p>\r\n<p>Try to calculate your profit or loss in each case below:<\/p>\r\n<ol>\r\n<li>Price falls to \u20b91,500<\/li>\r\n<li>Price rises to \u20b91,540<\/li>\r\n<li>Price stays flat at \u20b91,520<\/li>\r\n<\/ol>\r\n<p><strong><b>Formula : <\/b><\/strong>(Sell Price-Buy Price)*Lot Size<\/p>\r\n<p><strong><b>Answers<\/b><\/strong><\/p>\r\n<ol>\r\n<li>\u20b91,520 \u2013 \u20b91,500 = \u20b920 \u00d7 300 = \u20b96,000 profit<\/li>\r\n<li>\u20b91,520 \u2013 \u20b91,540 = \u2013\u20b920 \u00d7 300 = \u20b96,000 loss<\/li>\r\n<li>\u20b91,520 \u2013 \u20b91,520 = \u20b90 \u00d7 300 = No profit\/loss<\/li>\r\n<\/ol>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tjQuery('.text_slider_goto6').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 5);\n\t\t});\n\t\tjQuery('.text_slider_goto7').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 6);\n\t\t});\n\t\tjQuery('.text_slider_goto8').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 7);\n\t\t});\n\t\tvar resize_76850 = jQuery('.owl-carousel');\n\t\tresize_76850.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p>                    <\/div>\n\t\t        \n                    <div id=\"videos-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"videos-tab\">\n\t\t\t\t        <p><div id='sa_invalid_postid'>Slide Anything shortcode error: A valid ID has not been provided<\/div>\n<\/p>                    <\/div>\n\t\t                    <\/div>\n        <\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Study Slides Videos Slide Anything shortcode error: A valid ID has not been provided<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":21115,"menu_order":9,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"class_list":["post-21140","markets","type-markets","status-publish","format-standard","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21140","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/markets"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=21140"}],"version-history":[{"count":22,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21140\/revisions"}],"predecessor-version":[{"id":77113,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21140\/revisions\/77113"}],"up":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21115"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=21140"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/categories?post=21140"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}