What is Short-Sell? - Part II


How & Where to carry out the Short-sell in the stock market? Let us find out.


If we decide to go and trade in the stock market, then there are 2 segments for the same, one is the cash market and the other is the derivative market. The cash segment is that where we can buy even a single share of any company whereas in the derivative market the trades take place in lots.


So, if we carry-out a short-sell trade-in cash market, we are required to settle that trade on the same day i.e. we are supposed to do intra-day trading there. And according to our philosophy, day trading is injurious to health & wealth. If we come across the bearish trend in the market, it doesn’t necessarily mean that the market is going to go entirely bearish in a single day. In case you wish to carry out a bearish trade, you can do so patiently in the derivatives market.


Now, coming to the derivatives market, there are again two segments here, Futures & Options. If we carry-out a short-sell trade in the Futures segment, and after that, if the market goes down as per our prediction then we have a scope to earn good profit there. But, if the market goes up then we might end up suffering huge losses as well. Hence, it is said that the Future market is a two-edged sword. So, in the future market, if we trade and our prediction goes right then we can make an unlimited profit there but if our prediction goes wrong, then we can suffer an unlimited loss too.


The futures market segment is a risky place to be in, so we advise that if you have previously made a huge profit by investing in the share market before only then you should take the risk to trade in the futures market segment.


So is there any such segment in the share market wherein we can seek to determine the bearish trend of the market and carry-out a short-sell? Also, where the risk should be limited and there should be the scope of unlimited profit. Yes, there is such a segment called an Options market. We have previously talked about what the options market is all about


In simple words, the Options market is similar to buying a lottery ticket. If we buy a lottery ticket by paying Rs. 100 having prize money of Rs. 10 crores and if we don’t win the lottery bet, then the total loss that we’ll face will be limited to Rs. 100 but on the other hand, if we win the bet, we can win anywhere from Rs. 10, 000 to Rs. 10 crores. So, here the risk is limited but the profit is unlimited.


In the Options market, if the determine the bearish trend of the market and carry-out a short-sell trade i.e. buy the Put Option then the larger the margin by which the market falls the higher will be our profit. And, if the market goes then our loss will be limited to the amount of premium that we’ve paid.


Now, what are Futures, what are Options, what is Call, what is Put, etc? All these topics are covered in our app Aryaamoney’s ‘Gateway to Wealth’ Free Training Program. Do check it out.


In October 1987 when the American share market had witnessed a huge crash in a single day. It is also known as ‘Black Monday’. At that time Paul Tudor Jones very accurately predicted the bearish trend of the market and carried out short sell at that point and made fantastic returns from it. That trade is still considered as one of the Greatest Trades in the history of the share market.


Similarly, in the year 1990 when the Japanese share market valuation had become very expensive. Here too, Paul Tudor Jones predicted the bearish trend and bought Put and soon after that, the Japanese market crashed very badly and Paul Tudor Jones made a huge amount of money by short-selling in this bearish market.


Be it Paul Tudor Jones or famous short-seller Jim or be it John Paulson who predicted the crash of 2008 and made around $ 4 billion by trading bearish and which is still known as the Greatest Trade Ever. So not just these foreign traders but the list involves some of the Indian traders as well who accumulated wealth by way of short-selling.


In the year 1992, when Harshad Mehta had used the technique of Pump & Dump to falsely raise the prices of shares, at that time Radha Kishan Damani as well as Rakesh J rightly predicted the bearish trend of the market and made enormous money by short-selling at that time.  


Now, there are a few short-lived events, wherein we can predict the bearish trend of the market and make good money by short-selling. Also, when the market is at a higher valuation, there to you can trade bearish and make good returns. But for carrying out this trade, we have already advised that a derivative market is a risky place, so if you have earned huge profits earlier or if you can afford that much risk, only then you should carry-out such a trade. We too have carried out such trades and made good returns previously.


If you wish to earn good returns by way of investing or trading in the long-term then for that you’ll be required to have a trading as well as a demat account. You have two options for the same, opening an account with a full-service broker or a discount broker. So if we open an account with a discount broker, the charges there are less as compared to a full-service broker. Aryaamoney has started partnering with leading discount brokers, so if you wish to open an account with the leading discount broker ‘Upstox’ then the link for the same is given below.


If you wish to become a successful trader in the share market, then you are supposed to carry-out 4 step analysis for the same. It is as follows:

  1. Market Valuation
  2. Market Direction
  3. Share Direction
  4. Following the Stoploss


We have already uploaded a video on the 4 Step Analysis. Do check that out. The link is given below. Also, if you wish to learn this analysis in detail along with case-studies, then you can subscribe to our Smart Investor program in our app Aryaamoney. You also get a 2 months counseling session with the same.


Until the next blog…


Happy Trading, Happy Investing!!!


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