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The longevity of short sellingggg

Short selling is a common term ,we generally see in newspaper, at times we criticize it for volatility too... 


What exactly is short selling


  • Short selling basically  involves the selling of financial assets or securities (stocks, bonds) that do not belong to the person selling it but have been borrowed generally from a broker or a brokerage firm. 
  • Short selling works on the premise of making money over the fall in the price of the asset.
  • There are always certain stocks in the market, which are overvalued and overpriced owing to different reasons. A short seller predominantly looks out for such stocks, which are sooner or later, expected to see a fall in their prices. 
  • The short seller then borrows these stocks from a lender and sells them when the prices are still high. 
  • The short seller then waits for the prices to dip after which he buys back the same stock and returns it to the lender. The short seller thus makes a profit as he manages to buy the stock back at a rate, which is lesser than what he makes out of the sale of the stock.
What happened in US?

The Securities and Exchange Commission, which acts as a financial regulator in the US banned short selling of financial stocks on September 19 (2008 ) as they felt that it has contributed towards the fall in stock prices of the banks and could aggravate the financial crisis. 


The Indian Scenario

Short selling was practiced in India till 2001 but was banned by SEBI, after the Ketan Parekh scam. 

It was revived early in 2008. 

In India, now both retail and institutional investors are allowed to indulge in short selling. 

Despite bans in different parts of the world, Sebi has declined the need for a ban on short selling in India.
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Comments

Anonymous said…
okkkay....got 2 knw abt short selling...bt can u throw some more light on d same??
Monday, October 13, 2008 8:43:00 PM
Anonymous said…
this concept is confined to financial assets or securities only???
Monday, October 13, 2008 8:46:00 PM
M_U_K_U_N{U_V} said…
Ye hai BAN ka chakkar grt
So it should be banned sir .......
Monday, October 13, 2008 10:58:00 PM
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