Stock Market Investment Strategies - Short Selling

Short selling is the practice of selling a share that the seller does not own at the time of the sale. Short selling is done with the intent of later purchasing the same at a lower price. The difference thus obtained from selling and later buying the share at lower price gives the profit.

If you want to short sell shares then you need to buy back the same shares by the End Of the Day(EOD). This is because short selling of shares is possible only for intraday transactions. If you fail to buy back the shares then it is possible that the broker would buy it at the auction before the EOD.

For example: lets say you sell a share at 100 and later on the same day you buy back the share at 90. This means you have earned a profit of 10 from this transaction(assuming no brokerage charges :-)). The only difference with normal trading is that the selling happens before you buy it. Lets take the same example again and you have sold the share at 100 but instead of the price falling, it instead rises to 120. In this case you will have to close this transaction and buy back the shares by the EOD even if you have to buy it at a higher price than what you have sold it for. If say you buy back at 120 then you inherit a loss of 20.

Short selling is useful if you are sure that the prices is going to fall. Thus you can make profit in share market even when the share price/ stock market is going down. However, remember that these kind of transactions are very risky.