Short Selling
Selling a security that is not owned, in the expectation of buying it back later at a lower price.
How it is identified
Test: the sale is executed without holding the security in the seller's demat account at the time of sale
Unit
qualitative
In depth
Short selling requires either squaring off within the same session or borrowing the security through the securities lending and borrowing mechanism, since Indian settlement will otherwise fail and the position goes to auction at a penalty price. Its economic function is to let negative information reach prices as readily as positive information, which is why regulators permit it while restricting naked shorting. Short sellers also provide the buying that cushions a decline when they cover. The idea that shorting is inherently manipulative confuses the position with the separate offence of spreading false information.
Worked example
An intraday short of 200 shares at ₹500 that is not covered by the close goes to the exchange auction. The auction price is typically set at a penal premium to the market, so a settlement at ₹540 costs (540 - 500) x 200 = ₹8,000 more than a normal cover.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Short Selling” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.