Short Selling and Short Covering Of Shares

They are stock market techniques in an intraday session useful to achieve good profits rather than simple buy and sell of share.

Short selling is selling of shares according to CMP (current marketing price) in a intraday market, that actually we not bought or holding.
Short covering is the actual buying of shares in markets to sustain the sell units that are virtualized before.

Traders do short selling, when they expect a downfall of stock prices. Hence heavy short selling is followed by a bear stock market and the share prices presumably decreases.
Short covering indicates a positive sentiment in stock markets. Hence a strong bull rally may occur in stock markets.

The following example illustrates how being profitable from short covering from short selling and short covering:
- Traders expect a fall in stock markets.
- He sells 1000 shares of X company at current marketing price of Rs.100/-, that we doesn’t actually bought.
- As expected market falls.
- Assume the CMP of share price is fallen to Rs.70/- and booked profits.
- His profit is 100-70 = 30 per share. Final profit may include brokerage charges and other expenses.

But always short selling and short covering were not possible in cases like:
- Trading volumes are far less than our margin available.
- Large percentage of share re holding by promoters.
- Floating vale of shares is very less.

For the above instances a new term “Renting” of share is illustratable. Where a trader rents the share from holded persons or companies, he short sells the share and at final session short covers. Finally he handover the rented shares along with little rent or interest to respected investors or company.

Below are the available options to rent or borrow the shares for short covering:
- Mutual fund houses.
- Insurance companies
- Company promoters
- Long-term investors.

12 comments:

  1. This post is one of the best in all.I belief in this site. All the user in this site was posting their notice about the post so great.So i posted this comment to discus their post.
    Computer Store

    ReplyDelete
  2. Really very Awesome post. thanks for sharing nice information. please keep it up.
    ____________________________________
    Get free mcx Crude Oil tips reports

    ReplyDelete
  3. The articles written by author on stock market was so amazing that i like to read each and every post of this blog. Thanks to blog author for sharing the knowledge that helps to learn stock market.
    free commodity tips on mobile

    ReplyDelete
  4. These are the two completely new concepts for me. I found this post very informative.

    ReplyDelete
  5. Gold is heading for a second straight annual loss, the longest slump since 1998, after the dollar strengthened and inflation failed to accelerate this year. Societe Generale SA trimmed its price forecast for bullion this week, saying the Federal Reserve will boost interest rates by mid-2015 as U.S. economic growth improves.
    Stock Tips

    ReplyDelete
  6. The market opened on positive note driven by strong global cues.
    The Sensex was up 140.39 points or 0.52 percent at 27346.45, and the Nifty up 46.35 points or 0.56 percent at 8270.55.Stock Market Tips

    ReplyDelete
  7. You described very well short selling and short covering of shares.Short selling is selling of shares in a intraday market, that actually we not bought or holding.
    how to day trade stocks

    ReplyDelete
  8. EXTRA CALLS : BUY STAR CASH ABOVE 1150 T1 1160 T2 1170 SL 1140

    Equity Tips

    ReplyDelete
  9. Silver September future is trading firm with a gain of over a percent at $ 18.790.
    Platinum October contract has gained 0.5 percent at $ 1,065.
    Gold December delivery is slightly up at $ 1,318 per ounce.
    CapitalStars

    ReplyDelete
  10. I would like to thank you for the efforts you have made in writing this post. I am hoping the same best work from you in the future as well. In fact your creative writing abilities has inspired me.Intraday stock tips

    ReplyDelete
  11. You described very well short selling and short covering of shares.Short selling is selling of shares in a intraday market, that actually we not bought or holding.

    Tradorax broker

    ReplyDelete
  12. free trial
    I -DAY PRM CASH SELL NSE AUROPHARMA BELOW 553 TARGET 545-537 SL 563
    OUR FIRST TGT 545 ACHIEVED IN AUROPHARMA SELL CALL, BOOK PARTIAL PROFIT AND TRAIL SL AT COST.

    ReplyDelete

Make this article bright with your valuable comment.