What is Short Selling Explained by CA Rachana Ranade - YouTube

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  

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become more and more financially literate okay so  that's it from my side guys Jai Hind and Bye bye