How to Sell Short a Stock in Global Markets [Focus on the US, and Indian markets]

Basic concepts of shorting explained

The concept of short selling is the same whether it is intraday or longer term. You will need to understand a little more about the securities lending business if you want to fully understand the concept. In general there are big institutions involved in this business to make it more viable. It also depends on the market you are looking at. The one most important concept that you will need to know is the concept of lending and borrowing. When you short a stock you have to first borrow it from someone. But not always there are lenders who are willing to do so. That’s where your broker and intermediaries come into picture. The lender expects to be paid for allowing you to borrow his/her stocks. The borrower is the one who eventually bears the cost of borrow. But when you borrow, you are essentially selling the stock before you own it in the hope that the stock will fall. So you get cash in your account and this cash will start accruing decent interest in the current environment. So on a net basis you might earn something for going short the stock. But remember just a few years back in the world ZIRP it became extremely costly to go short any stocks. In case of intraday shorting you don’t really have to deliver the stock at the end of the day, but can square off with the PnL for the day.

Short Selling in the US Market

Short selling is fairly streamlined in the US markets. All you need to know is if a stock is available for shorting when you want to go short. You can find this information on the broker's website or by contacting them directly. You will still pay a borrow fee, but it gets netted out against your interest earned. Brokers like Interactivebrokers pay a fairly good interest on your cash.

Once you have found a stock that is available for shorting, you can place a sell order. The broker will then borrow the shares for you and sell them on your behalf.

Short Selling in the Indian Market

The short selling process is a little more complex in the Indian market. There are stricter regulations on which stocks can be shorted, and you will need to have a margin account with a broker that is registered with the National Stock Exchange (NSE).

You can find a list of stocks that are available for short selling on the NSE website. To short a stock, you will need to sign a disclosure form and meet the margin requirements.

Once you have met the requirements, you can place a sell order for the stock. The broker will then borrow the shares for you and sell them on your behalf.

Other ways to short stocks in India

An easier mechanism to achieve the same would be to use Futures on single name stocks to go short. The advantage is that the margin requirements will be lower for futures. However, you need to be wary of two important things:

Risks of Short Selling

Tips for Short Selling

Conclusion

If you are considering short selling, it is important to do your research and understand the risks involved. You should also speak to a financial advisor to get personalized advice.