So, you wish to know how to do short selling in Zerodha or with any stock broker for that matter. In simple words, Short selling is When you go short, you sell the stock first and buy it later. The same has been explained in detail here.
One of the best parts about markets, is in the fact is that it does not really matter whether the market is moving up or down, because there is an option to make money out of both of those scenarios. While buying a stock is the way to go for a bullish outlook, there are options available when one has a bearish outlook as well. One of those methods is Short Selling.
Short selling is a tool for a bearish outlook of the market, sort of betting against the market. When you buy a stock i.e. going long, you expect the stock price to increase in order to make a profit. In short selling, the idea is the lower the price goes, the more the profit occurs. In very simple terms, when you go long, you buy the stock first and sell it later.
Here’s how it works. Suppose you expect price of a stock do go down, you go to your broker, and you borrow those shares. Emphasis on borrow, because never in a short transaction you actually own the shares. Then, you proceed to sell them at current market price.
When the price falls, you buy those shares and return it from whence you borrowed. The difference between then prevailing market price, and market price after the shares fall is your profit. Note that in this scenario, while your maximum profit can be the difference between prevailing market price and 0, your maximum loss can be unlimited, simply because there is no upper limit to a share’s price rise.
Th efirst question is does this leading discount broker of India allow \Short Selling. The answer is YES. Zerodha allows to short sell, but as with other brokers, you'll have to square off the position or buy back shares before the end of market hours.
Process wise, it is very simple. Head over to Kite, Zerodha’s trading portal.
1.Add the stock/future contract to your market watch. Note that this is optional, but can be beneficial.
2.You click the stock, select \Margin Intraday Square Off (MIS)\ instead of Cash and Carry (CNC), and when the screen pops up, click on SELL directly, after inputting the desired quantity. This creates a short transaction.
3.Selecting a limit or Stop Loss for your transaction is advisable.
4.When the price falls, you can BUY the shares and exit the position.
However, there are a couple of things you should know before short selling in Zerodha.
1.Zerodha only permits intraday shorts, which means you have to BUY and square off your position by 3:20 PM.
2.For both stocks and futures, you require a certain margin amount, which will be notified during the transaction, if you do not possess the said amount. For futures, the amount of margin depends on the lot size.
Anything else you wish to add here? Feel free to share your opinion as well.