Short Selling

In India, intraday short selling is allowed on stocks. Positional shorting is done via futures.

If the stock falls, you profit. If it rises, your losses are theoretically unlimited.

Short selling adds risk because there is no cap on how high a stock can go.

On Indian exchanges, you cannot hold a short position in cash stocks overnight. If you sell shares you do not own during the trading day, you must buy them back before 3:30 PM or face a short delivery auction penalty from the exchange. This penalty can be severe, you may have to pay 20% above the closing price. For overnight or multi-day short positions, Indian traders must use stock futures on NSE.

Short selling through futures is common among experienced Indian traders. You sell a stock futures contract expecting the price to fall. If Infosys futures are at ₹1,500 and drop to ₹1,400, you make ₹100 per share × lot size. But if Infosys rallies to ₹1,700 on strong quarterly results, you lose ₹200 per share, and with a lot size of 300, that is a ₹60,000 loss. There is no upper limit to how much you can lose on a short position because a stock can theoretically keep rising.

Short selling is psychologically harder than buying. When you buy a stock, time is usually on your side because markets tend to go up over the long term. When you short, you are betting against the long-term trend. Additionally, short sellers face margin calls if the stock rises, and they must pay interest on borrowed funds or margin. This is why even professional traders limit their short exposure to 20-30% of their total positions.

In India, you can also take a bearish view by buying Put options instead of short selling. The advantage is that your loss is limited to the premium paid. If you buy a Reliance 2,500 Put for ₹50 premium and Reliance rises to ₹2,800, you lose only ₹50 per share. Had you shorted Reliance futures instead, you would lose ₹300 per share × lot size. This is why many Indian traders on Zerodha prefer puts over direct short selling for managing downside bets.