Short sale auction market - Kotak broking

#1
Yesterday, I shorted 300 SKS Microfinance at Rs. 711.5
I had taken margin to short the stock and forgot to square off by end of day yesterday.

Today, when I'm trying to buy it back to square off the position, my broker - Kotak, is saying that the position cannot be squared off and will go into something called an 'auction market' and will be settled on T+2 (?).

They are also saying that the price for squaring off may be anything in the 'auction market' and that I will have no control over this.

Has anyone heard of this before? What can I do to avoid this?

I'm sitting on a potential gain on Rs. 4,000 but can't exercise it because of the broker. Please advise.
 
#2
When you short in the cash market, you have to square off the trade before the market closes. So you have to buy back the shares whether you are making a profit or loss.

Now what has happened is, since you shorted, you sold shares to someone but you didn't have those shares and now you have to give delivery. The exchange will hold an auction for the shares after four days or so, and it will buy the shares at the highest price since your shortselling day and give them to the other party (he gets the shares at the price he bought and also some profit) and you will have to pay the remaining sum (loss) or else the exchange may close the position on a cash basis (which means the exchange just pays the person the money but doesn't give any shares). Either way, you will make a loss since the shares will be bought at the highest price, and there will also be a penalty.

When you short, make sure what the upper circuit is. Once the stock reaches upper circuit, you won't be able to buy back the shares to close the position. Once I shorted and didn't keep a stop loss and went out and when I came back after an hour, the stock had hit upper circuit.

If you are new, always trade with small volumes so that you don't make large losses when you make mistakes.
 
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