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What is short means in financial market?

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Posted by : NIFM
10 January, 2017, 3:27 PM
It is possible that if you are a regular listener of Business news then that is sure that you may be heard this terminology Short during the news.    Short or Short Position: Normally in share market trader buy a financial instrument and sell that instrument when prices advance. This is a normal trading strategy. Sometimes a trader sells an instrument in the future market when he/she is thinking that it may fall in coming days, week or month. Short selling can be very risky trading. It is opposite of long trading. Mostly selling is done with instruments which are traded in public futures, securities, commodity or currency markets, due to high volatility selling can be risky.    How does it work? Before selling any securities you must know the risk factor of short selling. When a trader will gain profit in securities when prices of that securities will decline from entry level. The difference between selling rate and buying rate will the profit of the traders.   For example, Mr. Amber Gupta wants to sell Gold in future market as he assumes that the gold trading at 31,500 is not a good level for investment due to less demand in the spot market and he assume that in coming days dollar may advance. In both cases, gold will decline. In the future market, you can sell a position if you are assuming that the securities will decline. To selling a security you have to pay an initial margin against the exposure you are using. Like to selling a 1 kg gold in the future market, you have to pay only 5% of total exposure to the exchange. The trader has to square off the position before the expiry date.    Mr. Gupta sold 1 kg gold in the future market at 31,500 per 10 grams for 2 months.  He has to pay 31,500 x 100 = 31,50,000/- (Total Exposure) X 5% = 1,57,500 only.   After 2 month if gold decline from the selling price like gold closed at 30,800 then he will earn 31,500 – 30,800 = 800 points X 100 = 80,000 rs. he will earned.   In the other case if prices advance and closed after 2 month at 31,750. In that case he will be in loss.  31,500 X 31,750 = 250 points X 100 = 25,000 rs. loss.   Thanks for reading this article. There are so many terms in share market. Improve your knowledge before trading in a stock market with NIFM. For detail join NIFM-stock market course. Call 9910300590, www.nifm.in

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