Buying and selling of shares in short selling are done when there is a strong possibility of the price of that share falling in the coming times. Under this game, short sellers sell shares even if they do not have them.
These days the word short selling is in the headlines in the stock market. After the Hindenburg report, the way the Adani Group has suffered losses, the word short selling has come into the limelight. The most surprising thing is that in short selling investors make a profit from a falling market. Actually, investors create their positions in any market in two ways. One is the log position, under this, the investor places bets on the stock rising. That is, investors will get a profit if the stock on which the bet rises. Another position is a short position, in this money is invested when the shares fall, and in this, crores are earned.
Bet on Decline:
Now the question must be arising in everyone’s mind how does it make a profit when the stock falls? Although it is a very risky job, many organizations like Hindenburg, which specializes in short selling, earn crores even from falling shares. Yes, a considerable amount can be made even from a falling stock. Hindenburg also earned crores when the share price of Adani Group fell. Overall, short selling is such a way of doing business in the stock market, in which the investor does not bet on the rise in the stock of a company, but on its drastic fall.
Earning from falling stock:
Any investor buys shares with the intention that their prices will increase in the future. When the price of the said share increases in the market, then the investor sells it, and makes a profit. Amit Nigam, an expert in the stock market and mutual fund affairs, says that on the contrary, in short selling, buying, and selling of shares is done when there is a strong possibility of the price of that share falling in the coming times. Under this game, short sellers sell shares even if they do not have them. But the point to be noted here is that he does not buy shares from the company and gives them on credit. This makes him a huge profit.
What is short selling:
But how this whole episode works, consider it as an example. Suppose a share is worth 2000 rupees. Now you know very well that this share will break down to Rs.1500. Now you sell 10 shares by asking the broker. Now the shares will not be visible in your demat account but Rs 20,000 thousand will be visible. Now as soon as the share price becomes Rs.1500, you buy it from the broker. You will have to pay only Rs 15,000 while buying back because the share price has fallen from Rs 2,000 to Rs 1,500. Now after the total transaction, Rs 5000 will start appearing in your account. That means you earned Rs 5000 money even though you did not have any shares.
There is also the danger of risk:
There is also a lot of risk in short selling. If the share price does not break and goes back up, then you may have to bear a lot of loss. Because if you have not bought the shares before the market closes, then the broker will buy those shares in your name before the market closes. You may have to suffer a loss due to this. One thing that is important here is that this type of trading is illegal in many countries, but SEBI and the Government of India allow it in the country. It is said in the media report about the short seller company Hindenburg that Hindenburg also adopts the same tactic for profit.
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