≡ Menu

Short Sellers Add Liquidity To Markets

Open ZERO Brokerage FREE Share Trading Account - Buy and Sell Stocks Without Brokerage - Set GTT (Good Till Triggered) Orders on System and Forget

Traditional brokers charge a lot for brokerage; however, this broker does not charge anything for stock buying and selling. Also, you can set GTT (Good Till Triggered) order after buying a stock, so that the system can sell the stock automatically at your target price even if you are not monitoring the market. Only 25k is blocked for option selling with hedge. Also, you get a lifetime free account in Sensibull (virtual trading app & strategy builder) which charges Rs.800/-+GST a month. Learn option hedging strategy if you open an account today. It takes 5 minutes to open an account online. Click here and Open Free Account with Them Today >>

There is a misconception among traders that short sellers, or short selling is bad for markets. In fact I talk to at least 10 traders everyday and 50% of them say they do not want to short sell by giving two reasons:

First reason – The margin blocked is very high by brokers and,
Second reason – It can make unlimited loss.

Well it is a misconception that short selling of options or futures is bad or unethical.

This is knowledge for those who only buy and never sell:

Who sells you the Equity, Options or Futures? They are the sellers. If no one is a seller a trade can never get completed. There has to be a buyer and a seller for the trade to be completed.

Do not forget that buyers have to become sellers one day when they decide to close their trade.

For example a trader bought an option for 80 and sold at 100 to book profits. When he bought the option he was the buyer, when he sold the option he become the seller.

Every seller has to become a buyer and every buyer has to become a seller to close their trades. When the trade is being closed they both have to change their positions.

Warning for Option sellers: On paper Option selling involves unlimited loss but limited profits. Therefore to safeguard and limit your losses, in case it happens, it is highly recommended that you hedge your sold options. But there is very conservative way to hedge the sold options and futures, which is well explained in my course.

There is also a general misconception among traders that short sellers try to bring the price down of an equity. Some even think, to bring stock price down of their competitors, some rich traders short their shares. This is not true. Whenever markets goes down it is blamed on short sellers, but the fact is if buyers are less than sellers, market or the stock goes down.

Shorting is just the opposite of buying. Those who think the stock may fall short it and those who think the stock may rise buy it. Yes sometimes the above does happen but it cannot cause a major outcome in stock markets. It can be ignored if you do not trade penny stocks. This the reason I highly recommended against trading penny stocks. Please do not get greedy and buy or sell unknown stocks even if your broker suggest you to do. Never trade penny stocks you can lose a lot of money.

Even in other businesses in the world short selling is done. For example a cloth wholesaler may sell the clothes to a merchant two months before the contract, take the money and deliver the products two months later. This is short selling.

Markets do need the short selling traders. Here are reasons why short selling is important for the stock markets:

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 1 comment… add one }
  • ashok January 8, 2017, 12:42 pm

    I have enjoyed to read this article that is meaningful.

Leave a Comment