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There are many people who love to play with their money in the stock market. But do you have any idea how does one short a stock? Well, if you are planning to short a stock, you need to be very cautious.

What is shorting of a stock?
Now what do you mean by shorting a stock? It means that you borrow shares of a stock from an investor and you need to sell the shares that you have purchased at the current market price. There are at times when stock price falls in NSE and the investor purchases the shares at a much lower price and then he pays back the stock to the person he borrowed the shares from. The short seller has to bear the losses when the stock price rises.

Open a brokerage account
You need to open a brokerage account in order to deposit money in your account. Not only that, but also you need to maintain enough money in your account in order to place a buy-to-cover order on your short sale.

Next you need to obtain margin privileges from your brokerage house. You should be aware that you need to maintain percentage equity in portfolio at all times. Do note that you will be charged interest and a maintenance fee on any money you borrow on margin in order to purchase securities. So, it is always better to get all the updates of the Indian stock market so that you know when and where to invest in stocks.

An important tip of buying stock is that you should look for stocks from companies that have bad fundamentals and also from those companies whose product may just be a passing fancy. Now let me tell you the reason why. Actually when you purchase stocks from these companies, you can be quite sure that the stocks are vulnerable to losing value.

As already mentioned, you should always remain alert about the activity of the stock in the BSE at all times. You should note that you would have only a limited amount of time to return the stock that you have borrowed to the original owner. Do not forget to return the stock to the lender as soon as you have sold it. So, you have come to know how does one short a stock, isn’t it? So get going.


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