Can I short sell in Delivery trading

Investing in the stock market is clearly the trend of this post-covid world. Although investing in the financial market was popular among a section of population , the overall number was still not very impressive. Share market investments were not the first priority of many individuals. Most Indians preferred low-risk financial instruments like government securities (G-secs), physical gold or gold bonds, fixed deposits etc. However, for trading in the share market there are different strategic options available for individuals. Among them, short selling is also a popular one. Short selling happens when the  stock exchange cannot deliver the requisite shares because the seller failed to fulfil   his commitment. Due to this fact, there are certain restrictions on short selling in equity delivery trading.

Delivery Trading

To understand how short selling works out in equity delivery trading, one must know about both  trading types properly. Let’s first start with delivery trading, which is quite common amongst investors. Delivery trading the entails actual purchase and sale of securities right at the time of trading. The buyer is responsible for having the necessary funds to accept delivery Similarly, the seller should mandatorily have the assets in his demat account so that delivery can take place.. Investors look to stay invested in stocks for a long time. Delivery trading is more akin to value investing than to trading for quick profits.The main motive is to gain from capital appreciation over a period of time.

The shares get transferred to or from an investor’s demat account upon executing a transaction. The interval for  selling the stocks is not a concern here. You can sell back your securities any time you want. No matter how small your holding period is, you can sell the shares available in your demat account. In addition, the advantage of delivery trading is that there is no fixed time frame to hold the assets you buy. Investors can retain their securities for as long they wish . 

Selling strategy in delivery trading

. Whether or not short selling will work in delivery trading is highly dependent on the selling principle used. Delivery trading is a safe trading technique in which assets are not constantly bought and sold as in day trading. Investors keep their assets for a considerable amount of time after  purchasing them. Moreover, both securities and funds should be intact to carry out a transaction. So, we can say, while conducting a trade, the concerned funds or shares get frozen . In such a case, it is not possible to implement trading techniques  that  involve speculative strategies. Hence, delivery trading does not prioritise or promote risky trading strategies. This is the legal basis for short selling in equity delivery trading.

Short Selling in Delivery Trading

Let’s now see what  short selling is  and why investors cannot short sell in delivery trading. To understand short selling, we must know about the rolling system of the Indian stock market. In India, equity delivery takes place in about two trading days. It is often referred to as the T+2 settlement period for delivery. This is the rolling system, according to which all transactions take place in our country. As per the rules, if investors buy or sell a security when it opens and  it  does not square off before the exchange closes, it goes for delivery. The delivery is compulsory if the investor or trader doesn’t square it off. Individuals will be required to deliver the securities.

 Here in lies the concept of short selling, where equity delivery does not take place. If an investor or trader cannot make the delivery, it will become a  short delivery. Intraday trading is pretty much allowed in delivery trading, but not short selling. Traders need to keep their commitments. If one fails to deliver f the securities, the transaction automatically becomes a short sell. Hence, we can conclude, the rules prohibit short selling in delivery. It also means that when a trader buys some shares, he must pay the entire amount  and take the delivery in his demat account. Another crucial thing is that it is mandatory for sellers to provide the delivery to the corresponding buyers.

Conclusion

Delivery trading mandates the transfer of securities and funds in a transaction. So, the scope of short selling is not present in delivery trading. So, one should focus on long-term investing, which is the crux of delivery trading. Several reputed firms, like Share India provide facilities for delivery trading. It has affordable trading plans too. The charges fit into the budget of most investors. Services offered on its trading platform are also excellent. So, our advice would be to take advantage of long-term investing to create wealth through delivery trading.

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