[NEWBIE] Can I short on Long Periods?

Hello,

I am know very little about long and short. Just a little bit. I was going through a few books and I can now understand what shorting is, to some extent, but I have an important question.

Can someone please help me and let me know if I can short for long periods (2-3months) or whether shorting is allowed only in Intraday trades?

I am talking about equity market, especially the BSE.

Thanks.

Yes off course you can take short trades for longer periods as well. For that you will have to trade in Stock Futures or Index Futures contracts which are near month [current month contract - Fut I] , next month [Fut II] & far month [next to next month - Fut III] .

These contracts have fixed lots of shares like Tatasteel has lot of 1000 shares whereas Reliance has a lot of 250 shares. You can go long or short on these contracts as per your view .

I trade in NSE only so no idea about BSE . One thing more to say that only jump in futures when you are really sure of what exactly you are doing.

Happy Trading. :thumb:

Thank you leonid

A small clarification here. When you say you can short futures, are you saying I cannot short normal equity shares?

For ex:

1. I open my trading terminal (say, example, ODIN)
2. I pass a short order on HDFC (not futures, just pure equity - either NSE/BSE is okay), for say 100 shares of HDFC Bank.
3. I wait for one month (do nothing)
4. Next month, I again open my trading terminal (say, example ODIN)
5. Then pass a buy on the same HDFC 100 shares that I have shorted.

Is it really that simple, or I am not understanding shorting? For ex, suppose I don't want to trade futures/options/commodities/forex. Just equity. Can I short, say HDFC 100 shares then do the next buy entry next month? Something simple like that?

Thanks for your time and answer.

Regards

Lord_Horn : Nope, you cannot short equity shares beyond intraday. Shorting for longer duration can be done in the F&O - Futures and Options segment (The lot size is fixed - and the lot size is around 3Lac rupees) Some big traders do short equities (but with an arrangement with the broker by 'borrowing shares' on which they may pay a fee) But for most other investors/traders, and for practical purposes, one can only short shares listed in the F&O segment.

Equity shares cannot be shorted apart from intraday trading. Therefore the Futures segment is used for shorting purpose. The drawback for a newbie trader is that Futures have fixed lots of shares as mentioned in my earlier post, therefore number of shares cannot be chosen as per own convenience.

Futures trading can involve great amount of risk if not done with due care as the transaction is generally big nearing Rs. 3,00,000 per contract.

Good thing is that for taking positions trader gets a leverage. Different scrips require different margins as fixed by the exchanges as per their volatility and beta properties . For eg. Tatasteel has a lot of 1,000 shares which could be traded in the Futures segment and this will require an amount of Rs. 90,000 in the trading account to take the position [long or short].

Not all shares are traded in the Futures segment and only those shares which have been allotted in this segment [ Futures & Options ] by the exchange can only be traded.

Also these Futures contracts have expiry dates [ last Thursday of the month] on which the contract is compulsorily settled by the exchange as per the closing price of the underlying scrip on that day.

Dear Leonid

This is fantastic information. Superb. Thank you so much for this.

Please can you tell me where I can learn more about futures and options on NSE/BSE?

Coming to intraday, is it possible for me to say:

1. Open my trading software (say ODIN)
2. Pass an INTRADAY Short on, example, HDFC Bank (say 100 shares)
3. Then, pass another Buy for the same short before closing of the day? (this becomes intraday)

If this is intraday, then I can short in normal equities, correct?

Also, even if I trade intraday, can I use my own lots? Or do I have to move with the pre-fixed lots even in intraday shorting of equities?

Super Thanks again for this wonderful teaching.

Regards

For Intraday trading , the best part is that you can go both Long or Short on Equities for that particular day.

Intraday trades in equities are compulsorily squared off by 3:15 pm by the exchange if the client does not close his/her position by then.

The leverage given for Intraday trading is quite good eg. you can get upto 10-15 times leverage.

So like you have 10,000 in your trading account , you can trade Equities worth 1,00,000 or more.

There is no bar on number of shares for intraday trading. You can trade in any number of shares as per your choice be it

1 - 10 - 25 - 100 - 500 & so on ...

An example I like to give to make shorting of shares in intraday trading more clear for you ..

Suppose you see at 9:30 am that HDFC is trading at 1120 . You analyse that the scrip will go down for that day .

You sell short the shares [ 100 shares ] @ 1119 at 9:45 am . Now at 1:30 pm you find that the share has gone down to 1109 .

Your target has been met which you had analysed in the morning. Now you give the square off [cover buy] order for the same quantity.

So you made a gross profit of 1119 [Short Sell Price] - 1109 [Cover Buy Price] = 10 *100 [number of shares] = Rs. 1,000.

Net profit will be less as brokerage + taxes will be deducted.

Leverage will be like this 1119 * 100 = Rs. 1,11,900 [Transaction amount], now if 10x leverage is being given by the broker then you will need Rs. 11,190 in your trading a/c for this trade.

One thing to add that you can trade in Futures as well for Intraday. It is called MIS trade and the position has to be squared off by 3:15 pm .

Hope things are more clear .

A very detailed information about Futures & Options and many other things is given at a link of NSE website which I am giving .

This is NCFM course of NSE . Start with Beginners module to get yourself thorough with things about derivatives. PDF files can be downloaded from this link and you can read them at your leisure.

http://www.nseindia.com/education/content/module_ncfm.htm

In intraday normal equities you can use your own lots (No.of shares)

Super thanks everyone. And a very special super thanks to leonid.

I will be back in this forum with some utterly beginner questions again.

Regards

Dear leonid

I have a small question about stop loss please, in the normal long position. In this example I am trading intraday.

1. I open my trading software say example ODIN at 9:30am
2. I buy intraday 100 shares of HDFC at 1200 each. During the day, I expect the price to go up.
3. However, to be safe, I put a stop loss at 1100.
4. Now instead of going up as I expected, the market goes down (much to my disappointment).
5. What happens is this... the price reduces...from 1200 -> 1190 -> 1150 -> 1120 and then, it directly hits 1080 (note that the move from 1120 to 1080 directly went BELOW my stoploss, that is, it bypassed my stoploss)

My question is: In this case, will the stop loss hit? And if it hits, will it hit at 1100 (what I had put in ODIN), or will it hit at 1080 (which is where it landed when it went directly from 1120 to 1080). Or, will the stoploss NOT BE TRIGGERED at all? Or, will the stoploss be triggered at the market price below the stoploss whenever someone is ready to buy my 100 HDFC shares?

If the stoploss does not trigger, then is it because the market bypassed my stoploss or whether I should have given a different type of stop loss? (I read that there are also different types of stop losses)

Thanks again for everything.

Regards