An Understanding Of Short Sell Delivery Trading

An Understanding Of Short Sell Delivery Trading

A variety of strategies are employed by investors in online share trading to take advantage of market trends and make money. Among these strategies is short selling in delivery, which involves selling shares without actually owning them to profit from declines.

In this article, we will discuss short selling in delivery and answer the most commonly asked question: can we short sell in delivery? We will also discuss the measures to prevent short deliveries and highlight the risks associated with certain types of transactions. Moreover, to make informed decisions, you should understand what short selling in delivery is, and can I short sell in delivery, as well as the risks associated with it.

What Is Short Selling In Delivery?

In short selling, traders take advantage of bearish market trends. Short selling is when you sell something without owning it. Furthermore, a person called an intraday trader buys and sells stocks in the stock market on the same day. Either they can buy first and then sell, or they can sell first and then buy. However, short selling in delivery refers to selling stocks without actually owning them.

As you know, when you purchase stocks, you must pay for them and keep them in your Demat account. When you sell stocks for delivery, you must actually deliver those stocks to the buyer. But if you fail to deliver the stocks by the required time, this is called short delivery or short selling in delivery.

When you sell shares on T day, your trade is settled on T+2 day, i.e., after 2 working days. It is considered short selling if you do not deliver the shares by then. Since the buyer has already bought and paid for the stock, the exchange will auction the shares and buy from the highest bidder. Additionally, you, who failed to deliver, will bear the auction loss.

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Table of Content

  1. What Is Short Selling In Delivery?
  2. Example Of Short Selling In Delivery
  3. Can I short sell in delivery?
  4. Risks associated with short selling
  5. Conclusion 

Example Of Short Selling In Delivery

Here's an example to help you understand short selling in delivery. Let's say you sold 500 shares of Tata Motors, thinking you already had them in your Demat account. However, if you sell them without actually having them, it's a short delivery. Here, the buyer who already paid for the stocks must get them at an auction. The exchange will auction those stocks and give them to the highest bidder, and the person who sold them without having them has to pay the loss.

Although you didn't mean to do short delivery, you have to compensate the exchange for the loss since the exchange guarantees every trade. Additionally, the buyer gets the stock on the third day after the original sale.

Furthermore, a check and balance system prevents short deliveries. The online trading platform won't let you sell stocks unless you actually have them in your Demat account. A type of deal called BTST, where traders buy stocks one day, and sell them the next, has a risk of short delivery. A buyer may end up with short deliveries if the stocks bought on the first day are short-delivered. After understanding this example, let’s move to the most commonly asked question “ Can I short sell in delivery”

Can I short sell in delivery?

You can't short sell in delivery trading. Only intraday trading allows short selling. During delivery trading, shares are bought first and delivered in T+2 days after the transaction. Under delivery trading, you can only sell shares that are already in your demat account. However, short selling is possible in both Call and Put option contracts. Futures contracts also allow short selling.

Risks associated with short selling

Short selling in share markets can offer higher returns by spending only 20-25% of the stock's cost. However, it also carries high losses. Generally, a stock purchased for Rs. 10,000 has a loss limit of Rs. 10,000. But, when short selling, you never know how high a stock price will rise.

Thus, it is important to understand that short sell in the stock market are not for everyone. It takes a lot of time and research to learn how to short sell stocks. Also, short selling can be used as a hedging tool (investment protection) in a bearish market. In case you are unsure about short selling securities, you can trade with confidence with the blinkX stock trading app. 

Conclusion 

Short selling in delivery refers to selling stocks without actually owning them in the stock market. Also, the answer to the question, can we short sell in delivery, is no, you cannot. While short selling is allowed in intraday trading, it is not permitted in delivery trading. When sold for delivery, stocks must be delivered to the buyer within the specified timeframe.

Failure to do so results in a short delivery and the exchange conducts an auction to fulfill the buyer's order. The seller who failed to deliver the stocks bears the auction loss. Additionally, short selling in delivery carries risks and requires careful consideration and research. However, stock trading apps like blinkX can help you navigate the complexities of the stock market and understand the rules and regulations surrounding short selling.


 

Short selling in delivery FAQs

You can’t short sell in delivery.

A person who defaults by short-delivering has to pay the extra expenses. The defaulter must also pay 0.5% of the stock's value on a per-day basis in addition to the extra expenses.

You can convert delivery holding to an intraday position only if it is purchased the same day before auto square off.

You can sell delivery shares at any time.

Individuals can keep their shares in delivery transactions for longer, depending on their willingness. The duration can range from two days to two decades or more.