How short selling works in India
| Instrument | How you go short | Holding period |
|---|---|---|
| Shares, intraday | Sell first, buy back the same day | Must be closed the same day |
| Shares, overnight | Borrow shares through securities lending and borrowing (SLB) | Up to the SLB term |
| Futures | Sell a futures contract | Until expiry or rollover |
| Options | Buy a put, or sell a call | Until expiry |
Intraday short selling
You can sell shares you do not hold in an intraday product and buy them back before the close. If you do not, your broker squares off the position. See square off.
If an intraday short is not closed and you cannot deliver the shares at settlement, the exchange buys them in an auction and charges you the auction price, which can be well above the market price, plus a penalty.
The rules
Under SEBI's framework for short selling, updated in January 2024:
- All classes of investors can short sell.
- Naked short selling, selling without being able to deliver the shares at settlement, is not allowed.
- Institutional investors must disclose a short sale when placing the order; retail investors can disclose it by the end of the trading day.
Short selling with derivatives
Derivatives are the usual way to stay short for longer than a day:
- Short futures gain as the price falls, point for point, with margin and no daily close.
- Bought puts gain as the price falls, with a loss limited to the premium.
- A [bear call spread](/bear-call-spread-strategy) or bear put spread caps both the gain and the loss.
The risks
- Unlimited loss. A stock can rise far more than it can fall.
- Short squeezes. When many short sellers buy back at once, the price can jump sharply.
- Upper circuits. A stock locked at its upper circuit cannot be bought back that day.
- Corporate actions and news. A positive result or takeover offer can gap the price up.
Related terms
Learn more
Frequently asked questions
Is short selling allowed in India?
Yes. All investors can short sell, but naked short selling is not allowed. Intraday shorts in shares must be closed the same day.
Can I short sell a stock for more than a day?
Not in the cash market without borrowing shares through SLB. Most traders use futures or put options for overnight short positions.
What happens if I cannot buy back an intraday short?
The broker squares it off before the close. If the shares cannot be delivered at settlement, the exchange runs an auction and you pay the auction price and a penalty.
Is short selling riskier than buying?
Yes, in one respect: the price can rise without limit, so the loss on a short position has no fixed cap.