How do Short sellers make Money?

I was wondering as to how short sellers make money over more than one trading sessions.

I am a small day trader and if I short sell a particular scrip then I have to buy the scrip before the end of the trading session and If I fail to do so then the broker auctions it on the 3rd day counting the short selling day session.

I think bigger players have arrangement with their brokers to have short positions carried over more than one trading session.???? Am I right.

Pls clear this for me.

Thanks
Appu.

Not like that. If you buy a share (take delivery), then you wait for some days and sell it for a profit. This trading is positional trading. When you do positional trading, you need not close your position, that is, you need not sell the share on the same day. I hope you know this.

You buy a share for Rs100. Your position is long. When the share price reaches Rs. 150, you sell it. You get a profit of Rs.50. Now your position is short. That means, you are waiting for the opportunity to buy the same share, of same quantity (for delivery), for a price less than Rs 150.

You wait till the price come down to Rs 120. Then you buy it for Rs 120.

Now let us analyze the case.

Instead of keeping the share you bought for Rs 100 in demat, you sell it and again buy it.

By selling you get profit of Rs 50. When you buy you spend Rs 20 extra.(when compared to first price Rs 100).

Now, you have your share on your demat account at the same time, you have made a profit of Rs 30 (50-20)

By buying and selling a same stock, you can buy lower and sell higher. You have long or short position on the stock and you make profits.

For this kind of trade too, you have to maintain stop loss and you have to analyze the market. If the price goes up after you sold or the price comes down after you bought, then you will have to wait for recovery. So good charting analysis is important.

Hope this helps.

Happy Trading.

Bigger players normally use Fno where these restrictions do not apply.

Bro bigger players trade in futures and get a mnth time for cash no broker allow short for next day

Bodhi,(Hope u dont mind that)

That was helpfull, just a bit more clarity on that, when on tv analyst say that "Short have been build" in the market implies, traders have sold their positional scrips and are waiting for a correction to buy the same scrip at lower level albeit higher than their original purchase & when "Shorts have been covered" implies they have taken a new position on the same scrip. Am I right?

What if a trader takes new position in the scrip at lower price than his original position? Do we term the event as "Short building"?

And I think the phrase "Short Building or Covering" is more appropriate or occurs more in a Derivatives (Futures & Option) rather than cash mkt.

Can u give me a correlation of Short building in Futures mkt and their impact on scrip in cash market or on overall index movement.

For eg. When Crude price are UP then price of Oil stocks goes north.

That's right

Short building in futures market shows the bearish sentiment of market participants, on equity / index.

If a short building "impacts" a scrip is mere sentimental. Derivative would not impact the underlying (equity) logically.

That's an old economy. In olden days crude oil was the major, if not only fuel used in factories for production. If crude oil comes down, it helps productivity. Productivity increases; shares go north!

Interesting? Btw..do you watch crude price daily?

No, My dad does. I misquoted, when crude goes up then oil stock gets cheaper but overall index rises, that correlation is my dad's observation. Current this is what is observed by him.

Oh. Sorry!

I just read "Stocks" instead "Oil Stock"

sorry

HI

i have a query about short selling.
currently i am using icici direct, while putting a sltp they demand for a limit price at a difference of 5%, wat is the significance of this limit price when we r putting a sltp, many times it happened that i put a sltp but it failed,for e.g
i put a sltp of rs 100 for a buy position but actually i got the benefit of 98.5, 99.0, while going for intraday trading u r earning benefits at even 2 or 3 points , in this way actually i incurred loss.

pl. tell me this is due to icici direct problem or something else..

thank u