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Read to know why shorting stocks can be very dangerous if you do not own the stocks in your Demat Trading Account.
I have done it myself. I mean shorting stocks without having them in my Demat account, leaving them overnight and have faced problems.
Well things have changed for the better but not sure how many brokers do not allow that to happen.
In short here is the dangerous trade:
1. A trader shorts shares of XYZ company thinking that it will go down. He does not own them in his trading demat account – just shorts them as a trade.
2. This trade is not done as MARGIN INTRADAY SQUARE-OFF (MIS), but as a normal trade which can be left unclosed overnight.
NOTE: This is a very important information. When I did this mistake in 2007-08, a lot of brokers allowed shares to be sold without in their clients demat account and NOT on a MARGIN INTRADAY SQUARE-OFF (MIS), but CASH N CARRY (CNC) or NRML a delivery based product or a product that a trader can carry forward overnight.
Today in the year 2017, things have changed. A lot of brokers do not allow shorting of stocks if not there in their clients demat account, in CNC or NRML mode, but this is allowed only in the MARGIN INTRADAY SQUARE-OFF (MIS) mode. This means even if the trader forgets to close the position, the MIS system will close the position by 3.15 to 3.20 pm to make sure this position is not carried forward the next day.
This is a good move to save traders from high risk trades.
MARGIN INTRADAY SQUARE-OFF (MIS) is NOT a delivery based trading. It is normal cash to cash trading in a single session, so no stocks are involved. For example Mr. A sells stock of XYZ company at 50 spot price at 10 am, and buys it back at 48.60 at 2 pm – there is no delivery required to be given by Mr. A for the stock as the trade was finished the same day. In fact if Mr. A sells that stock even if he has the stocks in his demat account and buys it back the same day, the stocks will not go out from his account as delivery is not required.
3. The trader does not buy it back as the stock went up and the broker too does not close the stock then there is a problem.
What Is The Problem?
The problem is that Mr. A had shorted the stock without owing them and it has to be delivered to the trader who bought it from Mr. A. But the problem is Mr. A does not have the stocks in his demat account.
Here is the problem. From where the market exchange will bring the shares to be delivered to the trader who bought them?
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What you should do now1. If you have still not subscribed for my free 5 days course you can do by filling the form above. You will learn a lot about option trading.
2. If you are a new option trader, not much experienced and are making losses you can do my paid course. I recommend Nifty Conservative Option Course for beginners because it is easy to understand and easy to trade. Even a 18 year old young trader or a housewife can learn it and start trading from next day. It will help you to earn consistent monthly income without any software or speculation or stress or big risk. You will learn proper hedging strategies that works in any market condition.
3. If you are banknifty weekly options trader you can do my Bank Nifty Weekly Options & Futures Strategy Course. You will learn future and option hedging strategies that works in volatile market condition.
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Course fees: Click here to know the course fees.
Here is complete process of my course1. Once you pay I will send you the course materials for studying to your email.
2. You read and ask me questions via phone/whatsapp/email to clear doubts.
3. Then you start paper trading and still can ask me questions.
4. After about one month you can start trading.
5. Since doubts can come anytime the support will be there for one year.
Within one month you can start trading on your own. No need to depend on anyone once you are on your own.
If you have any question you can contact me.
You can read about me here and my trading mistakes here.
Dilip Shaw, Founder
INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website. Please note that I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other form of social media. I strictly adhere to laws of my country. I only offer education on finance, investments on stock markets in the best possible way as much as I can through this website. Still, you must consult an authorized advisor or do thorough research before investing in any stock or derivative before trading any strategy given in this website. I am not responsible for any investment decision you take after reading any article given in this website. Knowledge is the only way to get success in stock markets. I try my best to give stock market investing and trading knowledge through the articles posted in this website. Thanks for visiting my website.