shortselling be careful

[niranjan44]

Hi Guys,

I am new to trading and i want to share u my experience with my first shortselling

On the 4 th day of my online intraday trading , I mistakenly sold 100 hcl stocks, mistakenly because i did not buy them.
As a software engineer, i thought the trascation will be cancelled.

The hcl share increased by value.
next day evening , my broker called me and said u had done a "short" but did not cover them( The broker is sleeping untill then). so they will go to Auction and u have to pay 20% penalty for that.

But i sold only 100 shares, so escaped with very less penalty.

I request anyone to explaninly clearly about shortselling in cash market and in Futures.

 

[bunny]

Hi Niranjan,
Actually, it is not the broker's responsibility to check whether it will short or not. Short selling is a legal and very common practice, so nobody will put a check on it.

And if you want to earn money by shorting, then play in derivatives(risky for a person who has not even completed 5 days of trading, mind it).

Also, since you are only a 4-day old trader, I think this piece of information may be useful to it, though you may already know it:
In the cash segment, you will get delivery after T+2 days. So suppose your BUY order is executed on Monday, the shares will be credited into your account by evening of Wednesday(after closing). This is called rolling settlement. So you can sell them(without fear of coming short on it) only in Monday's, or Thursday's onwards sessions. You cannot sell on Tuesday and Wednesday session. Some novices sell on 2nd and 3rd day without being aware of T+2 settlement.

Some brokers allow "Buy Today Sell Tomorrow" (BTST). But this is safe only when you already have sufficient delivery of the said stock. If you don't have, you will have to cover the short. Actually, BTST isn't anything new, just a is deceptive new name for conventional practice. So be careful.

Also, while shorting, be aware that you may not get an opportunity to cover the short if there aren't sufficient sellers. You may bid higher to resolve teh situation, but it is doubtful. Once, my mom had shorted only 30 shares of BOI and could not cover because of lack of sellers! After this, we do not short-sell. Only long positions.

 

[rahulrulez]

I have a question here. It has happened many times that I buy a stock on a particular day say Monday and sell the same stock with same qty on Tuesday or Wednesday. The only diff is that as you said I will be getting my stock delivery as per T+2 on Wednesday. But if have sold it on Tuesday, my T+2 for selling comes on Thursday.
So the risk would come only if I do not get my delivery on Wednesday.
Is there a greater risk in what I have mentioned above?

 

[bunny]

So the risk would come only if I do not get my delivery on Wednesday.
Is there a greater risk in what I have mentioned above?

You will surely get delivery on Wednesday evening, after closing of Wednesday session.
What you are doing(i.e, selling non-delivered shares on Tuesday and Wednesday) is nothing different than shorting. So it carries all the risks of shorting.

 

[harshatmehta]

I have a question here. It has happened many times that I buy a stock on a particular day say Monday and sell the same stock with same qty on Tuesday or Wednesday. The only diff is that as you said I will be getting my stock delivery as per T+2 on Wednesday. But if have sold it on Tuesday, my T+2 for selling comes on Thursday.
So the risk would come only if I do not get my delivery on Wednesday.
Is there a greater risk in what I have mentioned above?

There are 3 options from which you can sell.

1) Buy and sell on the same day will be counted as Margin
2) Buy and sell before 2 days will be counted as Obligation
3) Buy and sell after the t+2days will be counted as selling from Delivery.

You will have these 3 options when you buy or sell. If you choose the correct option you can sell safely without shorting. Eaiser way it to find the bought stocks and directly click on it to sell.

Some brokers don't auto square off your stocks even if you buy on margin. It goes to delivery and there by you can sell it at any time. SEBI has prohibited brokers from Auto squaring off but that practise still continues

 

[harshatmehta]

You will surely get delivery on Wednesday evening, after closing of Wednesday session.
What you are doing(i.e, selling non-delivered shares on Tuesday and Wednesday) is nothing different than shorting. So it carries all the risks of shorting.

Can't he choose the obligation option and sell it?

 

[rajeshn2007]

In cash market, no" sell today , buy tom" is allowed, whether it is monday or any day of the week.

 

[niranjan44]

Thankyou alot for ur explanation.

It will be great if anyone can explain risks and penalties for short selling.