If you are new to trading or stock markets you might have a belief that you can only earn profits when the price of stocks is increasing. But this is completely wrong, a trader can book profit from stock markets when the prices are falling too.
As you all know about the sudden crash of stock markets from the month of March due to the COVID crisis, but our members were able to book profits even during those times. This can be done through a process called ‘short-selling’.
Short selling or shorting is the process of selling a stock first and buying it back when its price falls.
Short selling is permitted in Indian stock markets. Even though all the transactions happen during our market hours (9:15 to 15:30). The final settlement of shares happens only after the market closes at 15:30. So at the time of settlements, when they check you have sold X number of shares and you bought back X number of shares itself. Therefore, it’s permitted in our markets.
EXAMPLE OF SHORT SELLING IN SUNPHARMA
On 17 April 2020, we were analyzing Sunpharam support levels as per our strategies. Given below is the graph of it. you can see the pivot points by the white line in the graph.
Once the graph moved below the pivot line we sold(short sell) 150 shares of Sunpharma at Rs460. Since it was a perfect support breakout the price of it kept on falling. The price kept falling up to Rs449.50 and we bought back those 150 shares which we sold in the beginning.
Sold at Rs 460 × 150= Rs 69,000
Bought back at Rs 449.50 × 150 = Rs 67,425
So the amount we spent for buyback was Rs67,425 and what we received while selling initially was Rs69,000. Therefore our profits were Rs1575 in the short-selling trade.
Sometimes for a beginner short selling might look a little difficult or complex now. Basically what I aim through this article is to make everyone aware of this golden opportunity to generate profits when the prices are falling. Short selling was the only option to book profits in the whole month of March when prices were falling drastically.