This chapter aims to help you familiarize yourself with a few commonly used market terminologies and their concepts.
Let’s get started.
Bull Market (Bullish) – If you expect the stock prices to go up, you are bullish on the stock price. From a broader perspective, if the stock market index is going up during a particular period, it is referred to as a bull market. Example – The market was bullish from mid-2020 to early 2022.
Bear Market (Bearish) – If you expect the stock prices to go down, you are bearish on the stock price. From a broader perspective, if the stock market index goes down during a particular period, it is referred to as a bear market. Example – The market was bearish from early 2008 to late 2009.
Trend – The term ‘trend’ usually refers to the general market direction and its associated momentum in the market. For example, if the market is declining fast, the trend is said to be bearish. If the market is trading flat with no movement, then the trend is said to be sideways.
Face value of a stock – The face value (FV) or par value indicates the nominal value of a share. The face value is important from a corporate action perspective. We will discuss corporate action in a separate chapter. Usually, when dividends, stock splits, or bonuses are announced, they are issued, keeping the face value in perspective. For example, the FV of Infosys is 5, and if they announce an annual dividend of Rs.63/-, the dividend paid is 1260%s (63 divided by 5).
52-week high/low – 52-week high is the highest price point at which a stock has traded during the last 52 weeks (which also marks a full calendar year); likewise, a 52-week low marks the lowest price point at which the stock has traded during the last 52 weeks. The 52-week high and low gives a sense of the range within which the stock trades during the year. Many traders believe that if a stock price reaches 52 weeks high, it indicates a bullish trend for the foreseeable future. Similarly, if a stock hits 52 week low, some traders believe it indicates a bearish trend for the foreseeable future.
All-time high/low – This is similar to the 52 weeks high and low, with the only difference being that the all-time high price is the highest price the stock had ever traded from when it was listed. Similarly, the all-time low price is the lowest price the stock had ever traded from when it was listed.
Upper and Lower Circuit – The exchange sets up a price band within which the stock can be traded on a given trading day. The highest price the stock can reach on the day is the upper circuit limit, and the lowest price is the lower circuit limit. The limit for a stock is set to 2%, 5%, 10%, or 20% based on the exchange’s selection criteria. The exchange places these restrictions to control excessive volatility when a stock reacts to certain news related to the company. The criteria (in terms of exchange restriction) changes for derivatives stocks (and index); more on that later.
Long Position – Long position or going long is a reference to the direction of your trade. For example, if you have bought or intend to buy Biocon shares, you are long on Biocon or planning to go long on Biocon, respectively. If you have bought the Nifty Index with an expectation that the index will trade higher, you have a long position on Nifty. You are considered bullish if you are long on a stock or an index.
Short Position – Going short or ‘shorting’ is a term used to describe a transaction carried out in a particular order. This is a slightly tricky concept. To help you understand the concept of shorting, I’d like to narrate an old incident at work; this happened around mid-2014, if I remember right.
If you are a gadget enthusiast like me, you would probably recollect that Xiaomi (a Chinese manufacturer of smartphones) entered into an exclusive partnership with Flipkart to sell their flagship smartphone model called Mi3 in India. The price of Mi3 was speculated to be around Rs.14,000/-. If one wished to buy Mi3, he/she had to be a registered Flipkart user as the phone was not available for a non-registered user, and the registration was open only for a short time. I had promptly registered to buy the phone, but my colleague Rajesh had not. Though he wanted to buy the phone, he could not because he had not registered on time.
Out of sheer desperation, Rajesh walked up to me and made an offer. He said he would buy the phone from me at Rs. 16,500/-. As a trader at heart, I readily agreed to sell him the phone! I even demanded he pays me the money right away.
After I pocketed the money, I thought to myself, what have I done?? Look at the situation I’ve put myself into. I’ve sold a phone to Rajesh, which I don’t own yet!!
But then, it was not a bad deal after all. I agree I had sold a phone that I didn’t own. However, I could always buy the phone on Flipkart and pass the new, unopened box to Rajesh. My only fear in this transaction was, what if the phone price is above Rs.16,500?? In that case, I’d make a loss and regret entering into this transaction with Rajesh. For example, if the phone were priced at Rs.18,000, my loss would be Rs.1,500 (18,000 – 16,500).
However, to my luck, as expected, the phone was priced at Rs.14,000/-, I promptly bought it on Flipkart, and upon delivery, I handed over the phone to Rajesh, and in the whole process, I made a clean profit of Rs.2,500/- (16500 – 14000)!
If you look at the transaction sequence, I first sold the phone (that I didn’t own) to Rajesh, then bought it later on Flipkart and delivered it to Rajesh. I sold it first and bought it later!
This type of transaction is called a ‘Short Trade.’
The concept of shorting is very counter-intuitive to normal humans because we are not used to ‘shorting’ in our day-to-day activity unless we have a trader mentality 🙂
Going back to stock markets, think about this straightforward transaction – on day 1, you buy Wipro shares at Rs.405, two days later (day 3), the stock moves, and you sell your shares at Rs.425. You made a profit of Rs.20/- on this transaction.
In this transaction, your first leg was to buy Wipro at Rs.405, the second leg was to sell Wipro at Rs.425, and you were bullish on the stock.
On day 4, the stock is trading at Rs.425, and you are now bearish. You are convinced that the stock will go back to Rs.405. Is there a way you can profit from your bearish expectation? You could, and it can be done by shorting the stock.
You sell the stock at Rs.425, and 2 days later, assuming the stock trades at Rs.405, you repurchase it.
If you realize the trade’s first leg was to sell at Rs.425, and the second leg was to buy the stock at Rs.405. This is always the case with shorting – you first sell at a price you perceive as high to buy it back at a lower price later.
You have executed the same trade as buying at Rs.405 and selling at Rs.425 but in reverse order.
An obvious question you may have is – How can one sell Wipro shares without owning them? You can do so, just like I sold a phone I did not own. So shorting is possible in the stock markets. The important point to remember is that when you short a stock, you must ensure that you buy back the stock the same day before the market closes. Of course, you can short a stock in the derivatives segment and carry forward the position for a few days. But at this point, ignore the derivatives bit and understand that all short positions in stocks (also called cash segment) have to be closed before the market closes. In other words, a short position in the cash market works only on an intraday basis.
To sum it all up…
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- When you short, you have a bearish view of the stock. You profit if the stock price goes down. After you short, if the stock price goes up, you will end up making a loss.
- When you short a stock, ensure you buy the stock back the same day before the market closes unless you use derivatives to short.
- Shorting a stock is easy – you select the stock you wish to short and click on sell.
To summarize long and short positions…
| Position | 1st Leg | 2nd Leg | Expectation | Make money when | You will lose money if |
|---|---|---|---|---|---|
| Long | Buy | Sell | Bullish | Stock goes up | Stock price drops |
| Short | Sell | Buy | Bearish | Stock goes down | Stock price goes up |
Alright, let’s continue our discussion on commonly used stock market jargon.
Square off – Square off is a term used to indicate that you intend to close an existing position. If you are long on a stock squaring off the position means selling the stock. Note when you close a long position, you have to sell the stock, and this sale is not considered a short position. Here you are merely closing an existing long position!
Squaring off a position means repurchasing the stock when you are short on the stock. Remember, when you repurchase it, you are just closing an existing position, and you are not going long!
| When you are | Square off position is |
|---|---|
| Long | Sell the stock |
| Short | Buy the stock |
Intraday position – This is a trading position you initiate with an expectation to square off the position within the same day. For example, all short positions in stocks are intraday positions.
OHLC – OHLC in stock prices refers to open, high, low, and close. We will understand more about this in the technical analysis module. For now, open is the price at which the stock opens for the day, high is the highest price at which the stock trade during the day, low is the lowest price at which the stock trades during the day, and close is the closing price of the stock. For example, the OHLC of ACC on 17th June was 1486, 1511, 1467, and 1499.
Volume – Volumes and their impact on stock prices are important concepts that we will explore in greater detail in the technical analysis module. Volumes represent the total transactions (buy and sell put together) for a particular stock on a particular day. For example, on 17th June, the volume on ACC was 5, 33,819 shares.
Market Segment – A market segment is a division within which a certain type of financial instrument is traded. Each financial instrument is characterized by its risk and reward parameters. The exchange operates in three main segments.
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- Capital Market (CM) – Capital market segments offer tradable securities, such as stocks and exchange-traded funds (ETFs). So if you were to buy or sell shares of a company, you are essentially operating in the capital market segment. Shorting stocks, too, comes under the capital market segment. The cash market is sometimes referred to as the spot market.
- Futures and Options (FO) – Futures and Options, generally referred to as the equity derivative segment, are where leveraged products are traded. We will explore the derivative markets in greater depth in the derivatives module (Futures modules and Options Module)
- Currency Derivatives (CDS) – The CDS segment is where currency pairs like USD INR, EUR INR, JPY INR are traded. The trading is via futures and options; hence it’s called the currency derivative market.
- Wholesale Debt Market (WDM) – The wholesale debt market deals with fixed-income securities. Debt instruments include government securities, treasury bills, bonds issued by a public sector undertaking, corporate bonds, corporate debentures, etc.
These are some of the commonly used jargon. If you can think of any other, please comment below, and I’d be happy to decode that for you.
Is it possible to short a stock in the cash segment for holding overnight or for long term? I thought only intraday shorting is allowed on cash segment.
Absolutely. Shorting in cash segment is possible only on a intra day basis and not overnight.
Hi Karthik,
This toturial is absolutely brilliant and it’s framed in well manner to understand from beginners view.
Can you explain about cash market and Equity market and what is the difference between these two.
Thanks,
Tamilmani M
They both are the case, the terms are used interchangeably.
Does this still hold true? Or can we now pick the option of sell today buy tomorrow?
You can still do BTST, Kiran.
What are Preference Shares and how these shares are different from normal shares?
Preferred shares are shares allotted on a preferential basis. The preferential shareholders have few special privileges ( voting rights, claim on dividends etc). Think about the preferential holders as Business class travellers and common shareholders as the economy class travellers….but essentially they are all flying in the same flight.
Preference share do not have any voting right.
Yeah.
Preference shares are those shares which get a fixed dividend payout on face value if the company decides to pay out dividends. The rate of dividend is pre-fixed , for example, if a company issued 10% Preference Share Capital then the dividend to PS holders will be (FV*no.of shares )*10% . Whereas dividend to equity shareholders will fluctuate based on the remaining profits of the company after all pay outs.
As ESH take higher risk because of uncertainty of dividend income (not to mention the higher return they enjoy during profit season), they get voting rights (used in General Meetings) and PSH do not have the voting rights.
Because they get the first preference on claiming the profits of the company they are called as Preference Share Holders and the shares they hold are called as Preference Shares .
True, thanks for the additional information, Sankari.
can we short in future and options ? can we short overnight?
Yes, this is possible.
Hi Karthik,
In a scenario where I take a short position on a nifty put option at a strike price of 8400, which expires on 24th Dec 2014.
My questions are.
1. What happens on the expiry, if the nifty reaches the strike price? and what happens if it doesn’t reach a strike price?
2. If the nifty goes up and the premium for the 8400 strike price goes down. In this case I strike off my position. Which will be a profitable trade. Is this option available?
3. Assuming I took a short put option on nifty at premium of 50 rs, i took 4 lots (currently nifty lot is 25) which would cost me 5000 rs. If the premium of the above position goes up to 100 and I don’t have money in my trading account. What would be the possible outcomes on this situation.
Thanks,
This is a topic on Options, so out of context 🙂 …but anyway, here you go …
Since you are short on a Put, your expectation is neutral to bullish..
1) As long as Nifty is at the strike or above the strike your put option wont lose money, if Nifty is below the strike you will lose money
2) Yes, it will be a profitable trade and you can do the same
3) You will have to park money as margins else the position will be cut off. Suggest you speak to your broker’s RMS team for the margin requirement
Kindly refer to your reply i. In PUT option, one will not loose money if price of underlying (Nifty here) is below the strike price of PUT (In the money) option and one will loose money if price of underlying is aove the strike price (out of money).
Its a short put position, Akash.
When i call my broker to buy shares how he would know whether i am buying for intraday or interday? do i need to tell specifically every time i call?
Yes, you will have to. In fact the dealer at your brokers office will ask you this himself. If he doesn’t you will have to ensure you specify.
Hi,
Could you please tell me procedure how to short a share(better with screen shot) as per given procedure ..when I tried to click on sell for a share..my transection was rejected..saying that demant account have no share for this to sell…howerer I was shoring this share as I have not bought that share…
Sure, maybe I’ll do this sometime soon. Looks like when you tried shorting the order type was ‘CNC’. Make sure you are shorting in ‘NRML’ mode and ensure there are sufficient margins in you account.
Wouldn’t this be taken as “MIS” instead of “NRML” since it is a short in cash segment and has to be squared off intraday?
By the way, you also need to ensure the stock is permitted for intraday shorting. You can check this list here – https://docs.google.com/spreadsheets/d/1-T6RlEE8Gn2fioep_Cmdx9ECRX_WpQbfJJfsU8PdOV8/edit#gid=0
I could’nt see NRML mode in zerodha. There are only CNC and MIS.
NRML is of course there, its for Derivative contracts.
Sir, is this style of trading , like taking short position is also called future trading or that is different? Though this chapter of future trading has not come yet. this is just a question of doubt. Thanks.
You can take short positions in both cash and futures markets. The only difference is that in Futures market you can continue to hold the short till expiry whereas in cash market you will have to close out the position the same day.
sir, please tell me what is future and options ?
Futures and Options are financial derivatives which are actively traded in the markets. Here is a full module on Futures – http://zerodha.com/varsity/module/futures-trading/ and we have just started work on options, you can keep a track on it here – http://zerodha.com/varsity/module/option-theory/
supposing only two traders ..i buy a share from other..what’s the volume? 1 or 2?
It will be 1 as there is 1 share bought and 1 share sold.
So now Volume is the number of shares exchanged in transactions rather than, sum of share bought and shares sold?
I want to buy 100 shares – you may sell 50, another guy may sell 20, and another 30. Here Volume is 100, but number of transactions is 3.
Volume here is 100 but number of transactions is 4 (1-buy and 3-sell).
Possible, it depends on the number of sellers along with quantities they have to offer.
Hi KARTHIK,
(1) When I am shortselling I am actually borrowing the same stock from other market participant. Does the market participant know whether someone else is borrowing his stock? If answer is “no”, then if I forgot to square off, the stock will be debited from his account and after auction the same will be credited. Meanwhile if he check his DP Holding statement, of course he will know the whole thing…am I right?
(2) Volume represent both buy and sell together. Why? Only buying / selling can count the volume…isn’t it? Why buy and sell is different? If I think some people forgot to square off at the end of the day, then those stocks goes for an auction and ultimately square off. Then it make no sense to represent buy and sell volume different.
Well, shorting in spot market is allowed only an intraday basis…which means you have to buy back your shares the same day else there is a penalty imposed on you. Here is an article that beautifully explains this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/consequences-of-short-delivery-nse-bse
The volume information is like this – Assume I buy 100 shares and you sell 100 shares, volume for the day is 100 however the number of trades is 2 as both you and I traded.
Thank You, Karthik 🙂
Welcome 🙂
I decide to short a stock for say Rs.400(1st leg) and now if the price shoots upto say Rs.600. I dont have the balance amount of money to buy the stock(2nd leg) , What should I do ?
This is exactly why we have margins so that such situations never occurs 🙂
So, the purpose of margin is to limit my losses. Meaning, I should play with that amount of margins, which I can afford to loose. Right?
It is more than that, Rajat. Margins help in preventing defaults and smooth M2M settlements.
Hi,
The dividend yield percentage is based on the Dividend Received / market Price * 100 . That means as per your example for Infosys the dividend yield will be 63 / 3000 * 100 = 2.1%. i think you need to change the definition under FACE VALUE.
Sriram
True, I made the necessary changes.
Hi,
I’m a little confused with this sentence > “For example the FV of Infosys is 5, and if they announce an annual dividend of Rs.63/- then it means the dividend paid is 1260%s (63 divided by 5)”.
What formula do we use to calculate?
Thank you
RL
It is the percentage formula, Rabbi.
There are more than 5000 scripts in stock markets. Can i go short on any script for intraday? Or is there any specific list of stocks which can be shorted for intraday in cash segment?
For all practical reasons I would suggest you look for shorting opportunities within the Nifty 50 baskets or maybe CNX 100. Going outside this basket may not be worth the risk.
When one loads the Market watch in Pi, the fourth column has several two letter codes — BE, BL, BT, BZ, D1, DR, EQ, H1, H2, H3 and so on. What are these two letter terms called? Is there any list available online which explains ALL these two letter terms?
These are all difference instrument series as per the exchanges. Of all these series codes two you must know – EQ and B1. EQ stands for ‘Equity’ which is regular spot market. B1 is again equity but you cannot do intraday trade on these…meaning you will have to do only delivery based trades on B1 stocks. There there are these N1, N2 etc all these are bonds, debentures etc.
Even I need to figure out where I could find a detailed description for each of these series 🙂
Hi,
refer the following link for more clarification : http://tradingqna.com/12296/i-want-to-know-in-nifty-f-%26-o-what-is-futidx-futivx-futstk
Oh yes, this is one of the best explanations!
the link doesn’t work now. Please share an alternative if anyone could.
Here you go…copy pasted the post from the link!
NSE
• EQ – Equity Shares Regular, Rolling Settlement, Intraday allowed
• BE – Equity Sahres excluded from EQ series and traded as Trade for Trade settlement, No intraday allowed, only delivery
• BT – Limited Physical Market, physical shares 8% of equity capital and upto the ceiling limit, Rolling Settlement, pre arranged buyer and seller
• MF – Mutual Funds which are listed in the exchange
• DR – Indian Depository Receipts, Rolling Settlement
• DE – Indian Depository Receipts, Trade for Trade Settlement
• ME, DL, DT, BZ, IT –
• E@ – Partly paid equity shares, Rolling Settlement
• X@ – Partly paid equity shares, Trade for Settlement
• P@ – Non convertible preference shares, Rolling Settlement
• O@ – Non convertible preference shares, Trade for Trade Settlement
• Q@ – Fully convertible preference shares, Rolling Settlement
• F@ – Fully convertible preference shares, Trade for Trade Settlement
• N@, Y@ – Non convertible debt instruments, Rolling settlement
• U@, M@ – Non convertible debt instruments, Trade for Trade settlement
• D@ – Fully convertible debt instruments, Rolling Settlement
• S@ – Fully convertible debt instruments, Trade for Trade Settlement
• W@ – Convertible warrants, Rolling settlement
• K@ – Convertible warrants, Trade for Trade settlement
Note: @ signifies character 1-9 or A-Z, except the existing Series Codes
BSE
• A – Equity Shares Regular, Rolling settlement, Intraday allowed
• Z – Shares of non compliant companies which failed to meet listing requirements, Rolling settlement
• ZP – Shares of non compliant companies traded and settled in Physical mode/ Optional Demat mode
• B – Equity shares excluded from A and Z category, Rolling settlement
• T – Shares which come under Trade for Trade category, No intraday allowed, only delivery
• F – Fixed income securities
• G – Government securities
• D – Shares which are listed though direct listing norms, Rolling settlement
• DT – Shares which are listed though direct listing norms, Trade for Trade settlement
• M – Shares listed under SME Small and Medium Enterprise, Rolling settlement
• MT – Shares listed under SME Small and Medium Enterprise, Trade for Trade settlement
• E – Exchange Traded Funds
• I – Interest Rate securities, underlying
• P – Shares traded and settled in Physical mode/ Optional Demat mode
NFO
• FUTIDX – Futures on Index
• FUTIVX – Futures on Volatility Index
• FUTSTK – Futures on Stock
• OPTIDX – Options on Index
• OPTSTK – Options on Stock
• SP-FUTIDX – Calendar Spread Order Futures on Index
• SP-FUTIVX – Calendar Spread Order Futures on Volatility Index
• SP-FUTSTK – Calendar Spread Order Futures on Stock
BFO
• IF – Index Futures
• SF – Stock Futues
CDS
• FUTCUR – Futures on Currency Pairs
• FUTIRC – Futures on Government of India Bonds
• FUTIRD – Futures on 10 Year Notional coupon bearing GOI security
• FUTIRT – Futures on Government of India Treasury Bills
• OPTCUR – Options on Current Pairs
• SP-FUTCUR – Calendar Spread Order Futures on Currency Pairs
• SP-FUTIRC – Calendar Spread Order Futures on Government of India Bonds
• Sp-FUTIRD – Calendar Spread Order Futures on 10 Year Notional coupon bearing GOI security
• SP-FUTIRT – Calendar Spread Order Futures on Government of India Treasury Bills
• UNDCUR – Underlying Currency Pairs
• UNDIRC – Underlying Government of India Bonds
• UNDIRD – Underlying 10 Year Notional coupon bearing GOI security
• UNDIRT – Underlying Government of India Treasury Bills
MCX
• FUTCOM – Futures on Commodities
Phew! Worthy of book marking 🙂
What does one exactly mean by selling pressure or a bearish stock??! If they say that there is selling pressure on a stock this means that a lot of people are selling it but on the contrary it also means that those many people are buying it! So whats this whole thing about?? Why this selling pressure and the prices going down when people are also buying? Am I missing
something?
Adam – when there is a selling pressure the sellers get desperate and they want to get rid of their stocks (for whatever reasons it could be). Hence they would accept lower and lower prices for their stocks and hence the price comes down.
typo: that I dint own
A stop loss order is a one day order right? So say if I have 20 stocks in my holdings will I have to sit and place sell orders at my stop price everyday!? Isn’t there a more convenient way of doing this? Also are trailing stop loss orders also valid for just one day?
Adam – unfortunately both stoploss and trailing SL orders are valid for the day and cannot be carried forward to the next day.
So If I have 20 stock in my holdings, will I have to place SL orders manually everyday?? Isnt there an automatic way of doing it?
Nope, placing daily SL is the only way now.
One last question….. How much does zerodha charge for BTST(Buy today sell tomorrow) trades?Is it the same as intraday brokerage?
Same as intraday.
suppose I short an option ,will there any further margin calls (I have already paid the margin at the beginning) if the current premium is > than the premium at which I shorted the option (asin the futures)
When you short an option you have unlimited risk, hence if the trade goes against you there would be a margin call.
Thank you.
Hi Karthik,
I have 2 doubts, first one is related to pre market opening. How we can trade on it and how it is regulated
Second one is related to disclosed quantity. What is this and how it is beneficial for any trader
Ankit – All market activities are regulated by SEBI. You can participate in Pre Market by placing a pre market order. Check this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/pre-marketpost-marketafter-market-orders
Disclosed Quantity is a disclosure method wherein you showcase only small bits to market.
So doesn’t disclosed quantity give more possibilities to false volume figures?
No as disclosed quantity is a subset of overall volume for the day.
I do not think I understand what you mean here. Can you rephrase what you have written in these two lines and explain them.
“When you first sell, you are essentially borrowing it from someone else in the market, and when
you buy it back, you actually return the shares back. All this happens in the backend, and the
stock exchange facilitates the process of borrowing, and returning it back.”
Assume you do not have Infy shares in your DEMAT. However you click on sell in the order form and sell 100 shares. Even though you do not have the 100 shares, your sell order will go through. And this will be facilitated by the exchange.
Hi Karthik,
Based on your statement, does this mean that I have shorted the stock with no intention of doing so?
Yes, if you directly sell the stock without owning the stock, then you have shorted the stock, with or without your intentions to do so.
If you are long on a stock squaring off the position means to sell the stock. Please remember, when you are selling the stock to close an existing long position you are not shorting the stoc k! – Does this mean squaring off means a complete order i.e both legs happen within the same day & if the order is sold from Demat it is not called squaring off ?
Square off is a term used to complete an existing open position. Traders generally use it in terms of futures and options trades as opposed to DEMAT related trades.
I am first time user of zerodha. I want to know full form of abbreviations like no, IOC. which is on buy or sell screen
Suggest you read this chapter – http://zerodha.com/varsity/chapter/the-trading-terminal/
Hi, Suppose I have gone long with 500 shares of a particular company in intraday equity and currently my expected price has not reached for squaring off. At this point, will I able to do short sell aa well? (Not selling the earlier shares I bought, I will keep it for a higher price if it comes later in the day)
If you do this on intraday basis, it would get netted out and the balance would be open. For example you bought 500 shares, sold 300 shorts…you’d be net long 200 shares.
Thanks Karthik for the clarification. I have been really enjoying reading all you modules, such simple and relevant examples you come up with! Fantastic! Keep up the good work! Currently reading Option theory. Enjoying every bit of it. Also have you come up with the trading strategies module, yet?
Thanks for the kind words Arup!
Not yet, we are currently working on Module 8 – currencies, commodities etc. Will start work on that after this.
Hi Karthik, I am first time user at Zerodha and have 2 questions
1) If I have 1 lakh in my Demat account, what is margin provided by Zerodha for the intraday trades, is it like I can buy shares worth more than 1 lakh in my account even though I have already purchased shares worth 1 lakh.
2) All intraday trades for a equity should be closed on the same day or would I get to carry over to next day and how long can I carry over. Do we have extra charges for carrying them over as I have used the margin provided by Zerodha.
1) Yes, you can pledge your shares to avail margins for intraday trading, more details on pledging here – http://zerodha.com/z-connect/tradezerodha/margin-requirements/online-pledging-of-stocks-for-trading-fo
2) All equity intraday shorts have to be closed the same day. If you wish to roll over long trade, then make sure you convert them to CNC.
If I selected my trade initially as MIS and then later in the day I change my mind and decide to hold the position for a few more days then is this possible? also, is it possible in the opposite case- ie, CNC first and later MIS for the same trade?
Yes, you can convert the position anytime during the day – check this – http://zerodha.com/z-connect/tradezerodha/kite/kite-introduction
Hi Karthik. I have a doubt. In the statement “If you have bought the Nifty Index with an expectation that the index will trade higher then essentially you have a long position on Nifty. If you are long on a stock or an index, you are said to be bullish.” What do you mean when you say If you have bought nifty index? As far as I was able to understand from previous chapters that we buy shares of company so I am able to make sense of the phrase to be long on some company’s share but I am not able to make sense of to be long on Nifty. Please explain this.
Does this mean that to buy shares of some company listed in NSE?
Hitesh – just like stocks, you can trade the Index (Nifty) as well. Trading in Index happens via the Futures and Options segment. So if I have bought Nifty Futures, I’m said to be long Nifty, likewise if I have shorted Nifty Futures I’m said to be short Nifty.
When we short a stock that means we are borrowing that stock from someone else and selling to some other person. So my question is there any time limit under which we have to buy that stock after selling and return that to the person from whom it is borrowed?
Well, shorting stocks (in spot market) works only on a intraday basis. So you should buy it back by end of day before the market closes.
Hi Karthik! I can’t stop appreciating the beautiful work you and your team are doing! Wonderful for people new to share markets.
Just waned to know, if you have any pseudo trading tool (or know of any such software/tool available anywhere), which mimics the exact market scenarios and people new to trading can use it to gain confidence before starting with actual trading? If not, I would kindly suggest your team to roll out something similar, as it will go a long way in implementing the beautiful theories you have given in the modules and get a hands on experience along with confidence before trying out the real thing with real money!!! Best wishes!
my question i just simple, as i am just a beginner in intraday trading. the difference between a bid price and an offer price is , in a bid price a potential buyer intends to buy a stock at that price and the ask price is a potential seller wants to sell a stock at minimum price. so, if i want to buy in open market. i have to buy from ask price or offer price and similarly if am selling i have to sell to best bid price. it is right if come to a conclusion that more volume in offerprice where potential seller intends to sell indicates a bearish trend, as more amount are waiting to sell. and high bid volume suggeting more people are inclined to buy a stock. so can i come to a conclusion that when there are more bid volume ( more shares waiting to buy) indicate a bullish trend and more offer price volume ( where more people intends to sell at a said price) indicates bearish trend. kindly enlighten me.
No Prakash, the bid-ask that you see constantly keeps changing, it reflects the demand-supply for that moment and nothing beyond that. Trying to over analyse this cause more harm than doing good.
Sir, is it possible to add bid/ask ratio to the chart in kite.
Zubin, I’m not sure but will get this checked. Thanks.
Hi Karthik
If I have sufficient funds in my account, will the MIS orders still be squared off at the end of the day?
Say I buy stocks in the morning worth 1 lakh with just 10 thousand by placing MIS order.
In the afternoon I transfer Rs 1 lakh in my trading account.
Will the the stocks bought in the morning still be squared off on the same day?
Is there a way to hold it for longer duration at the same price bought earlier with margin?
Will there be any charges or so?
Thanks
In addition to the above question…How long can a short position be held on derivatives. Can I sell call option today any buy one week later?
Yup, you can.
MIS by default is an intraday order, so it has to be squared off.
Check this – http://zerodha.com/z-connect/tradezerodha/zerodha-trader-software-version/zt-position-conversion
Hi Karthik,
Apologies if this questions sound stupid.
but wanna knw , is short trade should happen on the same day ?
i mean if i forget to sell the stock at the end of day for returning then what would happen ?
No question is stupid my friend.
There are 2 things here….(1) You short in spot and forget to close the position…then you are in trouble. You will have to bear the consequence of short delivery.Read more on that here – http://zerodha.com/z-connect/queries/stock-and-fo-queries/consequences-of-short-delivery-nse-bse
(2) You short in futures and forget to close….then its no worry as long as you have sufficient margins. If the concept of margins is new to you, I;d suggest you read the module on Futures trading here – http://zerodha.com/varsity/module/futures-trading/
Hi karthik,
I want to check if this is a possible and allwed scenario.
Day 1: Buy a share A at price 1000 for long in CNC mode.
Day 2:Some bearishness forms on the share. Can we short this stock by selling high and buying low and still continue the long holding?
are these types of trades allowed?
Yes, day one you buy in CNC mode…and on day 2 you simply do an intraday trade under MIS/BO or CO.
Are BankNifty Options very liquid as compared to other Options?
Yes, it is.
Hi, Suppose I have gone long with 500 shares of a particular company in normal delivery and currently my expected price has not reached for squaring off. At this point, will I able to do short sell well? (Not selling the earlier shares I bought, I will keep it for a higher price if it comes later in couple of day)
Yes, you can short sell – but on intraday basis in spot or in the futures.
Hi,
Previously we knew that regarding Transaction of equity shares, profits from selling shares which are held for 365 days or more, come under long term capital gain and are exempted from Capital Gain tax, but as per the Union Budget 2017-18, exemption under section 10(38) from income arising on transfer of equity share acquired on or after 1st day of October, 2004 shall be available only if the acquisition of share is chargeable to Securities Transaction Tax under Chapter VII of the Finance (No. 2) Act,2004. Does this mean that shares bought through ZERODHA will not get the benefit of Long Term Capital Gain in equity as ZERODHA did not deduct any charge while shares were purchased for the purpose of investment & holding in the Portfolio?
Kindly answer this query.
Regards
Indrani Banerjee
For the shares you buy from Zerodha, STT is deducted, hence eligible for the LTCG tax benefit.
Thanks, but when I buy shares for say 100/-, the value of shares bought is reflected as 100/-. If STT is deducted, then the value of shares bought should have been less than 100/-. I cannot understand this part. Is STT deducted at the time of purchase of shares?
A strict reading of teh IT tax act does not allow STT as cost. Hence it is safer not to add STT as cost to the purchase price or deduct STT as a cost from selling price. In short, profit or loss will need to be computed excluding STT on both legs.
Hi Karthik,
Amazing efforts by Zerodha to have put this together for a complete novice like me.
Would like to know whether a company’s share split ie total number of shares a company is split into, only depends on the Face value and seed capital ? Also whether it would be possible for the company to change this split anytime after it has been listed
Thanks for the kind words, Ronak.
The split depends on how the company intends to structure it. Split is reflected in the face value. Seed capital has nothing to do with it.
Hello sir,
My question is:
1) Can we short shares for a different price than market as done by your friend in the example where market price was not known?
For eg .If stock is trading at 405 can we short at 409 or less
2) In Volume doesn’t double counting take place?
1) If you place a market order in an illiquid stock, then you may get such prices.
2) No.
Sir, If i have buy CNC share of at Rs. 140 and i wish to sell it at Rs. 160. If there any formula/command by which i can set my sale price. Similarly can i set buy price for any share in CNC type so that i don ‘t eed to look in to market everyday ??
M
Unfortunately, you cannot carry forward orders on a overnight basis. This would limit you from doing what you are looking for.
What does mean BZ , BE etc please clarify.
They are all different segments of the market. Check this – https://www.nseindia.com/products/content/equities/equities/mrkt_segment.htm
Sir what does Stop loss order mean when you are buying a stock (How there can be a loss at the time of buying. Loss can occur only at time of selling)
Loss can occur when the stock price falls below the purchase price. Suppose the stock price starts to drop and you have decided to get out of the trade if the price falls below a certain price level, then that price level is called the stop loss.
Dear Kartik Ji.
what general criteria should be adopted for stop loss? we will be thankful to you If you could write some tips or in details with citing examples.
Thanks in anticipation.
I’d suggest you check out the module on TA here – http://zerodha.com/varsity/module/technical-analysis/ , SL for each pattern is discussed in detail.
What does previous close mean?
Does it mean the last price of trade in a day at particular time period on which the stock has been traded
or
It means the previous day close price?
It means the previous day close price.
Suppose i am intraday trading,
Previois day close is 28 and the CPM is 30 , will closing price change to 30 if any one buy at the price of 30 or it will remain 28?
You cannot change what happened yesterday right, so it will remain at 28.
An obvious question you may have – How can one sell Wipro shares without owning it. Well you can do so, just like the way I sold a phone that I did not own.
When you first sell, you are essentially borrowing it from someone else in the market, and when you buy it back, you actually return the shares back. All this happens in the backend, and the stock exchange facilitates the process of borrowing, and returning it back.
In fact when you short a stock, it works so seamlessly that you will not even realize that you are borrowing it from someone else. From your perspective, all you need to know is that when you are bearish on the stock, you can short the stock, and the exchange takes care of borrowing the stock on your behalf. When you buy the stocks back, the exchange will ensure the stocks are returned back.,…….—-
I when I first sell how I am borrowing it from someone else….
And then when I buy it back how I am returning it.
Very hard to understand this part.
And same question again how can I sell something which I am not owning
Suraj, with this information, I’d suggest you short 1 stock in the market and buy it back the same day. Dont worry about the profit/loss….just do the transaction and I’m certain you will understand this better 🙂
I have only 5000 trading capital , is it possible for me to trade in option and earn profit .
It really depends on how you trade 🙂
But frankly, 5K is bit tight. Please use this money to invest in a stock or two and experience investing for long term.
what about doing intraday with 5k as I’ve bit knowledge of intraday and what is the minimum capital to start with options trading?
There is no minimum capital for intraday. Sure, you can go ahead and do it. Everything is a learning experience after all 🙂
Hi
Do you have your office/representatives in Pune? If yes, please text me the address and contact number on 8983559413.
Regards,
Rahul
Here you go –
Phone – (020)-66209170, 9742142020, 9739162020
Address –
Mr. Basavraj / Mr. Uttam
Unit No. 2 First FloorBuilding No. B-3
Cerebrum IT Park Complex
Kumar City Kalyani Nagar
Pune- 411014
[email protected]
Hi Karthik,
I’m absolutely loving the varsity. What I want to ask is, if it’s possible to short in delivery. I’ve only heard of shorting in MIS on Kite. But can I sell the share today and buy it back maybe tomorrow or some days later?
Happy to note that, Pratyush 🙂
No, shorting for delivery is not possible.
For every buyer there needs to be a seller and vice-versa, right?
Then how is the volume actually calculated, what it actually signifies?
Suppose I have one chocolate and I sell it to my friend. If we calculate the volume, simply, as sum of sells and buys, it comes comes out to be 2 chocolates. But this doesn’t make sense, because there was only one chocolate which changed hands. And even after the transaction there is only one chocolate.
What am I missing here?
Number of trades is 2 and volume will be 1.
Have a look at this, it chapter is dedicated to volumes – https://zerodha.com/varsity/chapter/volumes/
Hi Karthik… Coming to the continued topic on volume.. fr every buyer there has to be seller right … so the prices are going down some one should buy fr the trade to get executed .. In a completely bearish market who are these buyers….. can you throw some light
In a bull market, buyers are willing to buy at any price the seller wants hence the prices tends to go higher. Likewise, in a bear market, the sellers are desperate to sell at any price, hence the price keeps dropping.
Is there a way to know how many short position that are open?
When doing short, from where its borrowed? Seems there is virtual outstanding shares which is increased. Looks like its only money transaction being made.
End of the day if no one is selling, how will the short position close?
You can look at the OI data and figure out how many shorts are there. However, you cannot know this in the intraday spot market. End of the day if no one is selling – then the procedure is different for different segments. Suggest you read the module on Futures trading as well.
Hi,
The way shorting is explained is great. I have one doubt and request you to clarify or share your inputs.
Shorting, i.e, selling can be done only in intraday or f&o contracts right? They can’t be done with CNC (Btst). Am I right?
Thanks,
Rakesh.
Yes, you can only short intraday in SPOT. However, you can carry forward your short position in the futures market.
If a company offers a bonus to the share holders means the market price will move downward or not
For example : if a company announced that 1:1 as a bonus to the share holders .now the current market price is rs 100 per share after this announcement the share price will be falls to rs 50 or it will remain same or else some other thing
It will reduce to the extent of the bonus announced.
Hi Karthik,
First of all thanks for the wonderful material throughout the Varsity chapters.
I have one question here w.r.t the above question on bonus and it’s impact on share price. Is there any way one can calculate using mathematical formula the expected decrement in stock price because of the bonus announcement. If yes, can you please elaborate how to do the same.
Thanks.
Swati, glad you liked the content 🙂
Yes, the math is already explained in the chapter. Can you kindly go through it once?
What is the difference between bonus announcement date and record date and exbonus date
Have explained this in the chapter itself, with illustrations.
can u plz give me the ans of my question series
*when company announce an annual dividend of Rs.63/- then it means the dividend paid is 1260%s (63 divided by 5).
1.okk but 1260% of what??
is that the total price of shares we hold (i.e. 5 ,on above example) and if yes then
2. how to calculate the 1260% of just 5
and
3. why 63 divided by 5
4.what is difference b/w asset class ,securities and market segment
1) Yes
2) 1260% of Face Value i.e Rs.5
3) 63/5 – expressed as a percentage is 1260%
4) Thats how you calculate the percentage
5) An asset class is something that has a future economic value. Security usually refers to Equity.
no thats not what i meant in que 2
i asked that if i have 1 share of $$ company and they announced a annual dividend of 63 than 63 divided 5 =1260%
than what amount i get annualy for JUST 1 SHARE (i.e. rs 5)
in short how will i calculate 1260% of 1 share i.e. 5/-
and what is market segment??
If the dividend per share is Rs.63, then you will get 63.
Market segment is different segments within capital markets like – Currency, Equities, Derivatives etc.
Kindly explain square off in a laymans language by example
If you buy a stock, then square off means you sell the stock to close the position.
If you short a futures contract, then square off means you buy back the futures to close the position.
In general, an action which will close an existing position in the market is referred to as square off.
Hi, kudos to ur team..
I have a questions..I am beginner
1. How can I buy ipo in primary market? ( During this primary market the ipo index is not listed in nse BSE but how can I buy shares?
2. Consider this scenario if I sell 100 shares of Infosys at ₹360. to make gain I have to buy it below ₹360..so what is the time period to buy it.( Did I need to buy within a day or else wait for next day to come below ₹360)
1. IPO can be bought using ASBA service provided by your Bank whenever the company is open for issue. If allotted, the shares will reside in your Demat and can be traded in the secondary. This is covered in detail in Chapter 5 of this module
2. Shorting for Equity can only be done on an intraday basis. At Zerodha, the scrip you short will be auto squared-off (Bought) at 3.20 PM.
However, you can take short positions for a longer time-frame in the derivative markets. You can learn about shorting in Futures in Module 4 and short position in Options in Module 5
Thanks a lot Faisal Mohammed
Settlement date for (i.e when it reaches demat account after record date) bonus and split shares
Can you kindly elaborate, please? Thanks.
I had bought a areydrg share on two weeks before and a company has give a split on 13th Nov the split shares are available on my portfolio but they didn’t come to my demat holdings when it come to my demat holdings
It should have credited to your account, suggest you give a call to the support desk for this.
Hi,
I have bought one script which shows now this is BZ series. I couldn’t able to sell this script now in Zerodha. My request was rejected.
Could you please assist what BZ series mean? Why didn’t I able to sell this script in Zerodha?
Thank you in advance
Balachandar
I’d suggest you call our support desk for this, please. Thanks.
i am having an account with ZERODHA .i want to give an suggestion that is it position to add 4 hrs chart option as well in zerodha kite platform.
Click on the 1 month time interval below the chart and it automatically changes to 4 hours candles.
How to convert an already processed MIS order (stock purchased) to CNC?
Can I take the delivery of a stock purchased on MIS as I don’t want to square it off at a lower price as due to fall in price, I have changed my plan suddenly?
In the Positions page in kite, you can click on the arrow key corresponding to your position. It will give you the option to convert to CNC(Only for long positions).
Please check the User Manual which contains the detailed explanation.
sir i want to know about sgx nifty(i.e.singapore) and its connection with indian nifty,how this sgx nifty affects the price of nifty before opening of indian market which leds to gap up opening,i want to know this in detail,plz tell me.
thanxx in advance
SGX is Nifty futures traded on Singapore stock exchange, just like the way Dow is listed on NSE. It does not really have any effect on Indian markets. Rather, SGX follows Nifty movements once Indian markets open. However, before the Indian markets open, traders look for the prices of SGX to get a sense of where the Index could open.
I did not understand the part about the FaceValue Can u please give me a better explanation?
Face Value is the nominal value of a share. This is the notional value assigned at the time of creation of these shares. Usually, Rs.10, 50, and 100 are quite a common face value of shares.
I’m trying to place a short sell order on a stock but it gets rejected.
in the comments it says “check holdings ,no holdings present” and “across exchange across segment across product”.
Can we go short only in F&O?
and if not then how do I execute a short order on a normal stock?
You need to ensure the product type is MIS and not CNC.
Hello sir
Is shorting possible in equity??
i understand and as mention in the blog related to BTST/ATST( Buy/Acquire Today Sell tomorrow) Zerodha does not allow to sell the shares unless we have it in our Demat account in order to avoid the defaulting situation.
But in the chapter you mentioned that while shorting exchange borrows the shares from other market participant and delivers it..
Could you please give me clarity regarding this.
Shorting in equity is possible only on an intraday basis. However, for the overnight short position, you can always use derivatives.
Suppose I buy 600 ce of a script at suppose 2 rs with a lot size of 1000
By expiry it becomes 0.05 and I’m holding it after expiry.
Do I hvae to pay the stt ?
I mean my maximum loss is 2*1000 + brokerage + tax right?
or anything more than that?
The loss will be the premium paid plus applicable charges.
Hi,
I had bought URJA GLOBA on BSE as CNC.
My holdings are reflecting it as “URJA-BE”. I dont understand. The URJA GLOBA closed at 11.40, i had bought at 9.7 average cost.
But the holdings are showing a loss at a closing price of 9.5.
I don’t understand this. Please help.
Ritu, although you had bought the stock from BSE, Kite will by default show the NSE price. You can still choose to still the stock in BSE which is trading at a higher.
Right now there is a price difference between both the exchanges which will eventually get thinner(check this screenshot)
Incase of Short
If in first leg i will sell first at Rs 459 /-. to buy in second leg at Rs 441/- ..how will i benefit in this bearish situation ?
bit confused with concept of short
This is as good as buying at 441 and selling at 459. Its just that you sold first and bought it back later.
What is the difference between face value (fv) and stock price ?
Face value is the notional/nominal value of the share assigned at the time of share creation. Stock price is the price discovered by the markets.
Sir,
If I wish to short a stock today, how to be sure that the stock has been shorted by me (the concept is not clear) and if it is shorted today after how many days can I buy that stock ?
The short position will reflect in your positions tab. You make money when the shorted asset goes down in value and lose money when it goes up. If you short in EQ, you can hold the position for only the day. If you short the position in Futures, you can carry the position forward overnight.
Can I buy a stock in BSE and sell on intraday in NSE and vice versa (I mean arbitrage) ? Also tell me in detail whether can I do this for buying a stock in BSE and sell on next day in NSE and vice versa ?
No, you can buy on BSE, take it to delivery and after few days sell it on NSE. Intraday is not possible.
If I have 500 in my account and I decide to short a stock at 400, if the value of that stock keeps rising forever way past what I have, could I get away with never having to square off the position?
All short orders in EQ is squared off on an intrday basis. You cannot carry forward the position overnight. For overnight positions, you will have use the futures.
in above para its written : Volumes represent the total transactions (both buy and sell put together) for a particular stock on a particular day. For example, on 17th June 2014, the volume on ACC was 5, 33,819 shares.
also note : every seller has buyer. so if 6 shares are bought then 6 would have been sold by seller. so volume should be multiple of 2.?
please comment.
I buy 10 shares from you, this means 10 shares were bought and 10 were sold – so the volume is 10+10 = 20.
In the above example of ACC the volume on ACC was 5, 33,819 shares, meaning the number of ACC shares BUY=SELL= 5, 33, 819. Right?
Yup.
plz explain short with another simpler example.i couldnot understand completly
Explain which part of the chapter, Shishir?
Dear Karthik Sir, Thanks for your valuable reply against my query about deliverable quantity & traded quantity.
Now going through the commends of 8th chapter of introduction, ” Commonly Used Jargon ” Mr. Ramesh’s query & your answer,
Ramesh says:
June 17, 2017 at 7:34 am
Is there a way to know how many short position that are open?
Karthik Rangappa says:
June 18, 2017 at 8:59 am
You can look at the OI data and figure out how many shorts are there.
Please elaborate how the Open Interest data can be used to find out the no. of SHORTS ?
Thanks & Regards,
Rajan A. T.
Ranjan, OI again gives you a sense of how many open positions are there in the market. You will have to match that with the price movement and make an intelligent assessment. No definitive way to figure out how many shorts in the market as such. Check this – https://zerodha.com/varsity/chapter/open-interest/
sir,
Is the difference between the CALL side OI and PUT side OI the no of Shorts available?
Does my assumption is correct sir?
Thanks and regards,
Rajan. A. T.
Nope, there is no difference as such.
hello karthik,
i need a feedback on nifty trading academy…
or can you suggest me the best trading academy in india to become a real trader
it would be highly appreciated
thankyou
Alex, I have no experience dealing with any of these academies. I always get a feeling that these academies are there to rip you off, but clearly, I may be biased 🙂
Hi Karthik,
As you might be aware today that Rcom shares surged 59% in a singled day session, i am really intrigued. Isn’t there an upper circuit limit of 20% on the movements in a single day on Indian scripts. I googled but didn’t find much info.Please clarify?
Thanks,
Gurpreet
There are execution range for derivatives stocks, but technically there are no price restrictions. Check this – https://support.zerodha.com/category/trading-and-markets/trading-faqs/articles/difference-between-execution-range-and-circuit-limit-fo
Hi,
I have few shares of Vakarangee LTD which now trading in BE-series. I am trying to sell these shares without success. Is there a way to get out of these stocks asap ?
Thanks
Mahendra
Mahendra, unfortunatley it’s hitting lower circuits everyday. Your only option is to place an order (market) every day as early as possible.
Hello sir ? Suppose some share closed at rupees 100 on Monday and it opened at 110 on Tuesday, so does it mean that the first trade that executed on Tuesday was at 110 ?
Also sir as you said that a stock cannot move more than 20% in a day, so this 20% is of the opening price ?
Some stocks have a 20% restriction, some have 10%, some have 5%, and some have no restriction at all. The limit can be breached any time during the day and not necessarily at the opening.
Yes. This is also called a gap up opening.
Hello sir,
I have a simple question. Can there be ever situation in India, in which retail investors are banned from investing in stock market ? I am talking only about investing and trading in stocks by retail investors in cash segment … NOT the derivatives. Can there be ban on retail investors to invest or trade in stocks ?
Thank You
No, I dont think that would ever happen as it would defy the very purpose of capital markets.
Thank you sir, I got it what you are telling, just one last query sir ,,, that SEBI argues that in F&O , retail investors make losses and do risky trading which they are not aware of much,, and trying to put them somewhat away from it. Similarly can they not say that retail investors make losses in investments in shares or trading in shares … so that is the reason to ban retail investors from investing and trading in shares (cash market) and instead allow retail investors to invest ONLY through MUTUAL FUNDS and not from themselves ?
Is this a possible situation according to you sir ?
Thanks in advance ..
I don’t think so, Rahul 🙂
hi Karthik,
My query is regarding 52 week high and low. When the price of the stock reaches 52 wk high,it indicates bullish trend. So,is this the right time to buy that particular stock or should we wait for the prices to fall down to its lower side?
I would prefer to buy at a retracement, Deva.
i did not get this..can u pls explain further.
To plot S&R, the stock should be trading between previous high and low, if the stock is continuously making new highs then there is no reference point. Hence it is not possible.
one more query,though it is not related to this topic- Mutual funds are also subjected to market risks,then why is it relatively safer to invest in this than the stocks?
Becuase the MF is well diversified and is managed by professional fund managers.
sir , does face value changes on daily basis ? or it is fixed forever ?
No, it does not, changes as and when there is a corporate action like a stock split.
Best Explanation for ‘short position’ I have ever come across. Thank you so much !
By the way, that is a true incident 🙂
Sir
I bought a partly paid shares of IBventures through zerodha. Now the share had stop trading as they have made first call on shares but i dont undersatnd how will i be able to pay them via ZERODHA. Please help. I m very new here bought the shares without knowing its partly paid.
What is partly paid shares, Sourabh? Can you share the instrument name or ISIN?
Mainly during IPOs, the company chooses to receive money on shares in different portions at different times. For example- X Ltd. issued 10000 shares of INR 10/- each at a premium of INR 20 /- , and they call only for INR 15/- first then INR 150000/- is called as Share Application Money. Then the company can choose to call for the rest of the unpaid money at once or in sections. That call made after the application money is called “First Call Money”. If the above co. makes a call of INR 10/- then INR 100000/- will be recorded in their books as First Call Money. So on and so forth till all the unpaid money is received by the money.
Hope this helps
Sankari, I’m not sure if this is still the practice.
Oh I’ll check it out once then. But still partly paid up shares means those shares that are issued but not fully subscribed or paid up.
Hmmm.
Sir I have a doubt regarding shorting.
From the point of view of the back end lender who is lending his shares for someone who wants to short, what is the benefit he is going to get when he receives his shares back from the borrower or trader?
Well, theoretically he has lent the money for a certain borrowing fee.
You mean the lender has lent the shares for a borrowing fee. Thank you.
Can a regular investor or trader lend shares for that purpose?
You can. Check this – https://www.nseindia.com/live_market/dynaContent/live_analysis/slbs_chain/chainDataBySeries.jsp
Thank you ☺️
Welcome!
Hello Karthik,
I have a doubt on Shorting. Just for a trial I sold the Stock of some company, which I dont have bought earlier (Holding “0” for that particular stock), when I placed “Sell” order without owing it, the Status of the order shows as “Rejected”.
I am still confused with Shorting.
Suggestions please 🙂
When you short, make sure the ‘Product type’ toggle is switched to MIS and not on CNC. This will will work 🙂
Awesome description & thanks a lot to teach in very easy way .
One suggestion is to have next and previous chapter link on each page .
Thanks, Pulkit. In fact, the next and previous buttons are already there at the end of the chapter.
what is d1 series in nse?
Arvind, I guess these are fully convertible debentures.
Sir,what does BZ series mean?
BZ group contains stocks which fail to comply with Listing Obligations and Disclosure Requirements (LODR 15) of SEBI.
More here – https://tradingqna.com/t/what-is-bz-category-and-why-is-gammon-india-trading-in-that-category/28942
Hii Sir,
Squaring off concept used after purchase of share or before purchase of share.
Please guide me in both the cases.
1 Long position
2 short position
To square off a long position, say 100 shares of Infosys, you will have to sell 100 shares of Infosys. To square off a short position of 1 lot of Infy, you will have to buy back 1 lot of Infy.
Sir,
We can sell of our holding portion or have to sale whole holding, suppose i have infosys 100 share then can i square off for 20 share or part of my holding
Yes, you can partially sell your holdings.
Thank you Sir for quick reply,
Two more doubt in this chapter.
1. What does mean of 52 week high/low.
Is it mean last financial year 52 week high/low or back from the present date.
suppose today( 27/12/2018) show highest price for any share is Rs 10000/-
This highest price is in FY 2017-18 or from 28/12/2017 to 27/12/2018.
which one is right.
2.Short position is done in intraday only or it can be done in delivery as well.
Someone told me that if i short share and don’t buy it back same day before closing the market then may be penalty imposed by stock broker or NSE or BSE.
1) It just refers to the last 52 weeks from today
2) Short in the spot market is only intraday but in futures market, you can carry forward
Hi Karthik Rangappa,
Can you please help me with the shorting concept or short selling please
Tejas, here you go – https://zerodha.com/varsity/chapter/shorting/
Sir I have one ques,
after a bonus issue or stock split, as seen in some of the stocks quite often the price tends to correct to the extent of bonus or split announced, so my ques to you is WHY.
Why someone wants to sell so heavily that the share price falls, its a loss for every investor, they are easily getting their money doubled by getting double amount of shares, overlooking the fundamentals, why market participants wants to drag the price down of the scrip, skip the fundamentals part just talk technical.
Mohit, the fall in the share is not because of selling, but rather due to the adjustments made due to the corporate action. I’ve explained this in the chapter.
well, if the fall is not because of selling so who adjusts this price, I mean if people are not involved in dragging the prices then who adjusts this price exchange or company, because somebody has to tweak something in order to change the price of stock getting my point.
The exchange does the adjustments to the prices.
ok so if exchanges tweak the prices to the extent of corporate action, then sometimes in some stock it has been observed that after the bonus or issue the price didn’t changed much, why is that.
Can you share the name of the scrip, Mohit and the exact date of the corporate action?
What’s the difference between upper and lower circuit and upper and lower price band.
The circuit limits are like upper and lower bound range within which a stock can trade for the given day. In the event, it touches those limits then the stock freezes for the day.
Please give me a real life example w.r.t difference between
Face Value
Market Value
Book Value.
Thanking you in anticipation.
Let me take ICICI as an example –
Face value is the notional value assigned to each stock, useful for corporate actions. ICICI’s FV is Rs.2.
Market value is the share price, for ICICI it is around 402 per share.
Book value is the entire worthiness of ICICI (including all its assets) and divided by the total number of shares. Book value is ard 170 for ICICI.
sir,
In kite web, i have changed pin1 & pin2 as stocks, i want to keep nifty and sensex indices in pin1 & pin2, how to change please guide me.
Right click on the scrip and pin the stock.
Do you need to pay while shorting ? or only when you buy back? how this works?
Yes, you will have to have margins in the account to short. In fact, any new position that you intend to initiate requires margins.
Hey Karthik,
I am not sure to well understand the meaning of the face value of share. Actually, I have trouble to distinguish the FV from the current value of a share. In what are they different?
Luc, the face value of a share in the nominal value of a share, which is assigned at the time of creating it. Typical face values are 5, 10, 100 etc, with 10 being the most commonly assigned face value.
The current value is the value for the share in the market, which is actually market-driven – an outcome of trading activity.
Thanks a lot!
As everyone says, why don’t you publish a book of this content of Zerodha Varsity, so that it could be read anywhere and everywhere.
PDF’s are published, Harshvardhan so you can always take a print 🙂
Thanks for replying so fast. Yes, I have just realised that the PDF of all the Module is available at the bottom of the page. The content is too rich in quality, at the same time it is easy to understand for lay man like me.
Thanks again for the great work.
Happy to note that, Harshvardhan 🙂 Happy reading!
What is BZ?
In the ‘Positions’ tab in Kite, if we click thee dots, there are 3 options, i.e. add, exit and convert.
Exit and convert position is easy to understand and its description is available in Varsity.
What is the use of ‘Add’ position ? I cant find any reference in Varsity
Add position allows you to add more to the already existing position. So if you are long 1 lot of Nifty, by clicking add you can add more to the position.
Are upper circuits and lower circuits are fixed for a particular day ?
Or the value of these circuits can be re-fixed on that day ??
It is defined as a percentage. So as the markets move, the actual numbers get adjusted.
Can we say a long position is a synonym of Buy position?
Yup, you can.
I had shorted IRCTC for 944 on March 30. Since then, it has been on UC. I have placed GTC buy order. No luck till now. Currently, it is at 1137. Am I staring at a nightmare? It looks like it will stay on UC for a while.
Sorry, what does UC mean? Btw, I’m not sure if can comment on individual stocks/positions 🙂
What is the meaning of T?
I purchase bank of baroda but in watchlist
It appears quantity as T1:20.
I purchased 20 share.
Pls huid me.
T1 means Trade day + 1. So it means the previous day you bought 20 share of the scrip, delivery due to you on T+2.
t means traded quantity
if means your dmat account has not received it.
So if you trade this means you might do margine trade and you zerodha will charge you for that.
this may not be correct. but currently i think this so
1. why shorting is not allowed in CNC or regular order …why only in MIS .?
2 . can we can short for longer term in FNO ?
CNC is basically credit or debit from your DEMAT. If you dont have shares in your DEMAT, then you cannot sell from CNC. Yes, you can short upto 3 months on CNC and keep rolling that over.
Hi Karthik
Need help on concept of Shorting, the below sentence from the above paragraph is pretty confusing.
“When you first sell, you are essentially borrowing it from someone else in the market, and when you buy it back, you actually return the shares back”
Could you please make a block diagram or a simple flowchart on how this shorting works , that would be easier for me and some other guys to understand.
Thanks and regards
Aditya
Suggest you read the follow on explanation here – https://zerodha.com/varsity/chapter/shorting/
At the time of short position should we mention the number of days when we are buying back,?
No, not required.
I know how to buy or sell in equity CNC. Little doubt in MIS.
1) can we buy when ders no sellers similarly can we short when ders no buyers?
2) In zerodha margin calculator i want to check margin of bank nifty and nifty futures . In which section i need to go coz I am getting confused der.
thank u
1) To buy or sell you always need a counterparty, if there is no counterparty, then your order will not go through
2) You can check here – https://zerodha.com/margin-calculator/Futures/
does position mean the duration of holding the stocks?
Position means the open active trading positions you have in the market. if you have bought 10 shares intraday, then you have 1 position i.e. long 10 shares.
hi
i am having problem in trading view on zeroadha. when ever i change the colour to white background it is not saved . when i open a new chart it goes back to the default settings. there is no option of save as default in zerodha trading view in settings.
please help
Try saving them as a template.
can we buy back the shares anytime in short position? Or Is there any maximum number of days within which we should buy it?
If you short in the spot, then you have to buy back the same day, you cannot carry forward the position.
Hello KARTHIK SIR ,
I can’t understand the definition of Face value specifically that 63 dividend, 5 face value and 1260%s (what is this)
kindly elobrate it please sir….
You are getting a dividend of 63/- on a stock which carries a face value of 5, hence you get a 1260% dividend.
= 63/5
=12.6 or 1260%
I have shorted 5 shares of axis bank through MIS option. What is the process to buy it i.e. to close the transaction & book profit.
You can click on the scrip in the position tab and click on exit, that will square off the position.
Hi team,
Assuming the trend is negative for any reason, what will happen if everyone shorts a particular share? Another question is why don’t everyone short if they know the trend is negative?
Thanks.
The price will hit a lower circuit. Markets are made of different opinions, not everyone thinks the same way 🙂
Say a particular stock price is ₹106 in NSE and ₹110 in BSE, can I short 1000 shares in BSE and buy 1000 shares in NSE in inra-day trade and square off the position?
Yes, you can.
During intra-day long position, if I am convinced of long term bullishness and retain 100 shares on delivery basis there are 2 options. 1. If I bought 1000 shares, selling only 900 at the time of square off. 2.Sqaring off 1000 shares and initiating a fresh CNC buy of 100 shares.
You can do either and it would result in the same outcome.
Hi Sir,
As Volume is total no. of shares bought and sold both put together, how could it be possible to have an odd number for Volume…?
Because fractional shares cannot be bought/sold isn’t it ?
“Volumes represent the total transactions (both buy and sell put together) for a particular stock on a particular day. For example, on 17th June 2014, the volume on ACC was 5, 33,819 shares.”
Thanks,
Sai
Hey, I just realised that the exchange reports just one-way volume, so if I buy 11 shares and sell 11 shares, volume reported is 11 and not 22.
hello karthik i just wanted to clear up a doubt when u said ” A market segment is a division within which a certain type of financial instrument is traded” were the financial instruments corporate bonds etc or something not discussed here?
We will start discussion on corporate bonds soon.
kartik on 15th may my opening cash balance was 13240,i sold 100 shares of hindlvr 202880 and in selling asian paints i earned 504 accordingly on 16th may my opening balance should 216624/- while at the site its showing 216143.33/- which is less by 481/- can you [please provide me the break up of this 481.Am i paying this amount as charges or anything else. No one from your office is available on phone i this lock down since many days. Will appreciate if you let me know.
Regards
Dpandey
Ah, you will have to contact the support desk for this.
Hello,
Is there a difference between “covering position” vs “squaring off”?
The only way I can think of closing my position is to buy in case of short selling or vice-versa. Are there any other ways to cover my position without squaring off?
They are the same, Varun.
In regards to Sakthikumar’s query on 9 th May, 2020 in this comment section, He asked the following
‘Say a particular stock price is ₹106 in NSE and ₹110 in BSE, can I short 1000 shares in BSE and buy 1000 shares in NSE in inra-day trade and square off the position?’
to which you agreed to.
Isn’t trading between exchanges disallowed on the same day?
Because i remember you mentioned if someone is buying shares from one exchange and wants to sell it on another exchange, He can’t do that on the same day.
in terms of long position, you had mentioned one can buy shares from one exchange and sell in other exchange.
No, in fact, this is a popular arbitrage strategy. This position should be an intraday trade. Cannot carry it forward to the next day.
Also, please ignore the last line.
I LOVE YOU, KARTHIK!
We love you too, Vaibhav! Happy learning 🙂
Can i do a short delivery where i hold the trade for a few days?
YOu can with futures.
Hi Karthik,
What do we mean by 1st leg and 2nd leg when we talk about long and short position?
Thanks
These legs come into picture when you have multiple positions for a trade. For example long future and short put. Here long future is the first leg, short put is the 2nd.
Hi Karthik,
I would request if u could provide a bit more detailed explanation on the same.
Thanks
You are asking this in the wrong chapter. Check this module – https://zerodha.com/varsity/module/option-strategies/ , it is all about multi-leg position.
Is Outstanding shares means it includes shares of promoters,angel investors and VC , PE and shares issued during IPO..?
Yes, thats right.
Refering Volume: For example, on 17th June 2014, the volume on ACC was 5, 33,819 shares.
If it is ‘both buy and sell put together’ , can there be a chance for the volume to be odd number.
Exchange reports only 1 side, so it is 33819*2
Sorry, its already answered. Thank u
Where in NSE can I check the upper and lower circuit of individual stocks? I know one can check it from the trading app, but I am curious to know how to find it from the NSE website.
Thanks in advance 🙂
NSE has changed the website, I’m really not sure where they are displaying this info. Need to dig around a bit.
I think that Shorting will do for intraday only . is it possible to shorting long time period?
If it is possible to do, then how much time will be, please explain it.
Yes, you can short in futures segment and carry forward the position.
That’s exactly what I was looking for.
I skipped that and went directly to Candlesticks.
Thank u..
Good luck!
Can comment section be integrated to Varsity Android app…
That will be a big project in itself 🙂
Is short option is available for holding position?
For example i sell Asian paints at 1607rs and after a day or week can i buy back at 1585rs?
No, this is not possible Senthil.
This is an absolutely brilliant blog for beginners! I have been looking for the right content over the past year until i found this. Thankyou so much^_^
Hey Riya! Happy reading 🙂
Hi Karthik,
Thanks for the detailed explanation. It’s very helpful.
I have one doubt on upper circuit and lower circuit. In most of the companies if stock hits lower circuit, then it freezes at this price for the day. However I observed wherein few companies stock price goes below the LC price. Is UC/LC concept applicable only to few companies?
A company’s share price cannot go below the LC. Circuit concepts are applicable to most of the stocks.
Does EXIT (any time during the trade period is on(i.e, before 3.20 pm) option on KITE app means squaring off my position or it means I am selling my stocks at the LTP?
Yes, exit means you square off an existing position.
“Many people believe that if a stock reaches 52 week high, then it indicates a bullish trend for the foreseeable future. Similarly, if a stock hits 52 week low, some traders believe that it indicates a bearish trend for a foreseeable future.”
When the value of a stock reaches its highest, then isn’t it more reasonable to assume that it has a high chance of falling down? So, shouldn’t it indicate a bearish trend for the forseeable future? Same doubt for 52 week low, as well.
Thanks again.
Yes, that is also a valid thought. People call it the contrarian view. Usually, when a stock hits 52week high, you expect the momentum to continue. It is like you hit full throttle on a highway, you want to drive at that speed for a little longer before you cut the speed.
Questions:
1. Let’s say, the price of a share fell down from Rs.1000 to Rs. 200 on the first day of lockdown. That is a 80% drop, larger than the lower circuit of 20% (which is the max limit, I’m presuming, prescribed by the exchange). So, why is the threshold needed in the first place? Is the COVID situation a special exemption for such a drop in one day?
2. Also, is the loss from shorting stocks limited to the price band/upper circuit? Can the loss exceed 20% (which is the max, right?) set by the upper circuit? I agree that 20% is still very high a loss to incur. Same doubt for lower circuit, as well.
Thank you for your time.
1) Not all shares have the same circuit. Few stocks dont have circuit also
2) If the stocks has upper 20%, then yes that is the restriction. But if you have shorted futures and the stock hits 20%, then your account will be deep red.
Small doubt, if we are long on a stock that means we are bullish and believe that stock prices will rise in future. So why in case of squaring off if we are long on a stock the position means to sell the stock?
Thats right, when you are long, the square off trade is to sell the stock.
You have the patience of a saint, Karthik, responding not just to queries but strange accusations haha. Also, I love the way you have put all of this together. More people really need to know about Zerodha Varsity.
Lol 🙂
Thanks for the compliments, Pradeep!
hi, I am very new to all this and am writing this after completing this module.
In the 15th chapter you mentioned, support price and resistance. I am not aware of these terms and did not find it here as well.
please include these as well in this chapter.
I’ve explained this in the Module related to Technical analysis – https://zerodha.com/varsity/chapter/support-resistance/ but before reading this, I’d suggest you start from the 1st chapter and proceed in a sequence.
In the short position example that you gave how can we borrow shares from someone else ? I don’t think there exist any body which allow you to borrow shares just like the bonds. And actually when you sell the shares , the shares will be transferred from your DEMAT account, then how could is it possible to trade from an empty DEMAT account ?
The equity short trades are on an intraday basis. The clearing and settlement process allows you to do this.
Dear Karthik,
Is the pull of shares same for BSE and NSE or is it separate? For example a company has 100 shares in secondary market. Out of which 50 on BSE and 50 on NSE or all 100 shares traded on both BSE and NSE randomly at same time?
Another similar question. Are shares dealt in delivery for long term, intraday trades, Futures and Options from same pull ? Is the share bought by me can be from the seller who sold it in intraday trade or trade in Futures and Options?
Thank you
I can buy 100 shares on NSE, but while selling, I can choose to sell on BSE. So the dynamics keep changing. But having said that, NSE has higher liquidity in the market. These are two different segments i.e. derivatives and CNC. So it won’t be mixed up, besides in F&O, it is just the contract which gets trades and not the actual shares.
Thank you for your quick reply
Good luck, Amol.
Explaining the term ‘Volume’, it is aid that “”Volumes represent the total transactions (both buy and sell put together) for a particular stock on a particular day.”” I think that for every transaction there must be a buyer AND a seller. So, it is not clear to me what exactly you mean by ‘both buy and sell put together’. If 100 shares are sold by some one, obviously bought by some one else, the Volume is 100, right ?, not 200. unless I am missing something here. pls clarify. thanks
Exchanges report this as a 200, Mani.
I wanted to ask that what if I short a stock and it breaks the lower circuit? Because shorting is permitted only on an intraday basis, how will be I able to buy the stock back as trading will not be permitted for the stock on that day right? Will I make profit or will I have to pay penalties? And what if the stock breaks the upper circuit?
You will be stuck with the position and it will be auctioned off. Check this – https://support.zerodha.com/category/trading-and-markets/trading-faqs/general/articles/what-is-short-delivery-and-what-are-its-consequences
When a stock hits upper circuit, trading for that stock is halted for the day. gland pharma touched upper circuit today on 23rd nov at 10:25 am and trading halted. Then why gland pharma started trading again at 13.45 ?
Trading is not halted for the day, it resumes when there are sell orders. Btw, dint it IPO recently?
yes. it issued ipo recently. But my confusion is, lots of stocks don’t trade again for the day after hitting upper/lower circuit unlike gland pharma? like future retail. Why this dichotomy?
There are exceptions to this for new IPOS.
Is it possible to get high and low Values for a particular period
52 week is published on daily basis.
Can We Do Shortselling In 2020? If Yes, How can We Do that
Yes, you can. PLease do call the support desk for this, they will help you with it.
Can shorting be done only intraday? Or can I short it today and buy it after 4 days when the price falls?
Shorting in EQ is on an intraday basis. For overnight, you will have to short futures.
Sir can one short the stock for delivery and hold it till the stock price makes low and buy it at lower price back, my question is it will lead to short delivery right?
What are warrants and treasury bills
Avi, you can short (overnight) only in the derivatives segment and not in the spot. Warrants and bills are short term debt obligations.
Hi, i wanted to ask that what is the holding period for short trading? Like, if we sell short, and the price goes up(thus, a loss) and then we wait for the price to go down to make profits. Can we do that?
Yeah, if you are short via futures, then you can hold the position for a while, but with spot, you will have close the position the same day.
Great explanation, Karthik!
Where can I read more about the ‘mechanics of shorting’? I want to understand the reason why one cannot hold short positions overnight as one can hold long positions. The settlement is in T+2 days. If one has T+2 days for long positions to be settled in DEMAT, why can’t there be the same T+2 days for a short position on Intraday trades? I mean, considering T+2 settlements if one can convert MIS buy positions to CNC (BTST trades), why she cannot convert MIS short positions into CNC (STBT) considering the same logic of T+2 settlements?
If you sell shares from holdings, the shares are swiped from your account the same day and you receive the funds on T+2 basis. So assume you short, by the end of the day if the shares are in your account, it gets swiped, else this will result in a default.
The entire settlement cycle and mechanics have to rewired to enable ‘short + hold’.
Really today I feel I got valuable knowledge of the market… Thnks to the creator 😁
Aneeta, happy reading and learning 🙂
Hi Karthik,
Wonderful material. Reading this shorting during a live example in the real market ie., Gamestop stock (Reddit retail investors vS Hedge Fund Comapnies).
However, what is the difference between money markets & equity markets?
Rahul, money markets is where short term and ultra short term bonds and bills are traded, EQ market is where stocks are traded.
Which type of shares can I short in India? Is there a list available?
I suppose you mean short and carry forward right in the spot market? that’s not possible in the Indian markets.
Therefore, if I am not wrong, Shorting can only be done if we select MIS. And we need to settle the position before market closes?
That’s right, all intraday EQ shorts have to closed/squared off by end of the day.
Excuse me for being silly, but there are still some terms in the comment section, I am not sure of. What do you mean by ‘Spot’ market? And what is Not a spot market?
When we search for an instrument in the marketwatch,is it mentioned somewhere what kind of instrument it is as in normal share or derivative, commodity or options?
There are two markets within the stock market i.e. the Spot market and the Derivatives market. Spot market (also called cash market) is where you buy shares and hold them in your DEMAT. The derivatives market is where contracts of futures and options are traded.
Hi karthik sir, there is one query related to green shoe option, sir please tell what will happen if, additional 15% shares are allotted to investor (to exercise gso) but the share price never falls below the issue price within 30days (prescribed by the sebi). how the Stabilizing agent will return the over alloted 15% shares to the promoters.Also tell me that are they any difference in gso of USA and gso of India?
I’m not sure about this actually, need to do some research and get back on this 🙂
Hi sir. can we carry our short position overnight/ for more days by using slb facility, is it available for retail traders?
As shorting is only allowed for intraday trades, using SLB will let us carry our short position for more days.
Yes, you can short and carry forward the position in SLB. I’d suggest you speak to the support for this.
In futures and options, we can short for more than a day, right?
And why do companies set such low face values, and how is it helpful apart from calculating the dividend and stock split gain value?
Yes, that’s right. FV is notional, usually set at 10/-. The main use if for the corporate actions, nothing else really.
can we short in future and options ? can we short overnight?
Yeah, you can.
Is there a timeline to be followed for a short trade? how much time does on has to buy stocks after the sale has been initiated?
Not really, depends on your risk appetite.
What would happen if a stock reaches the upper circuit? Will the price fall because it is the only possibility? Or will the trading for that stock will close for the day?
The price can be stuck in the upper circuit until there is some cool off in prices and traders start to sell.
Can one short sell a stock and take delivery of that trade for long time (min. 1week)?
No, thats not possible in the spot market. However, there is something called as ‘SLB’, in which you can. Check this – https://www1.nseindia.com/products/content/equities/slbs/slbs.htm
In case of market wide lower circuit. (e.g something that happened in 2008 market crash), if someone tried shorting shares and market halted for an hour. Will the shares be auctioned or user will be given a chance to square off position as market resumes?
A small request sir, will you please write a small article on shares getting auctioned if intraday positioned not squared off (though this wont be case with Zerodha), and post market session (3:30 – 4:00)?
Check this article Sandesh – https://support.zerodha.com/category/trading-and-markets/trading-faqs/general/articles/btst-risk
So when we are shorting – we are borrowing the stock from some one – what if that someone wants to sell it because the price increased and we want to hold on to it because we know it will fall in some days – how will this situation unfold
Short is only an intraday affair in the Equity market. You can hold the position overnight in the futures market. In the futures market, it is just the contract that you buy or sell.
Can you please elaborate more on Intraday Position, that’s still unclear to me.
As in which part is confusing, Babita?
Many people believe that if a stock reaches 52 weeks high, then it indicates a bullish trend for the foreseeable future. Similarly, if a stock hits 52 week low, some traders believe it indicates a bearish trend for the foreseeable future. ——-> How come, people decide the market nature in advance?
People dont decide, Saroj. These are expectations that they build, not necessary that the markets confirm these beliefs.
The person who designed this is absoultely brilliant one
Mind blowing content
I m now able to understand each and every thing about stock market
Written in very easy and understanble language
Thanks for the kind words, Rohit! Happy learning 🙂
Can I use MIS code to short a stock today and hold it to do BTST repurchasing?
Nope, you cant do that.
Hi
I just started learning about share market and i m stuck in few concept regarding shorting
1) when say i sold share of 2500 at start of market hour using shorting and i want to buy back at lower price assuming market will do down in today’s time
So buy price is say 2400 at which i have bought
But in reality i didnt make any profit because in my account hundred is not credited
Just i m saved of 100 extra
And i didn’t get how can we borrow from market i.e we have to purchase share to sell someone
Please explain above two points
No Sarvesh, you need to look at it as what price you bought and sold. Here you bought at 2400, sold at 2500 (although in reverse order). So you make 100 as profit and the same will be credited to your account on T+2 basis (assuming you shorted the stock in EQ market).
sir, thanks for explaining about shorting
Sir but how do we borrow shares from the market, is it purchasing it from the market from our money, please explain this point
How do we do shorting in Zerodha, I have used Zerodha and know that day trading is available but don’t know how to borrow it
Sarvesh, there is no borrowing as such since shorting EQ is on an intraday basis and you have to close the position within the day. To short, you just have to press sell on the stock and buy back later.
@Karthik Rangappa Sir I want to express my love and respect for you but can’t find the perfect word, may be you can help me finding the word. Understanding stock market from here is very very vey simple. I wonder how can you write this in so easy to understand language. You are legend. THANK YOU. Best wishes.
Hey Suman, thanks so much for the kind words, means a lot to me and the team 🙂
How Can I short a stock for week like I want to short on Tata Power,
I select Sell on Zerodha and want to sell 10 quantities
How buy will work???
if I can’t keep it overnight , how will my position square off??
No Harsh, that won’t be possible. Unless you short the futures and hold the position overnight.
Dear Karthik,
These tutorials are wonderful and interesting….very simple and can easily understand. The Q&A is informative too. On the whole it’s like being in a class room…and Karthik the patient and knowledgeable teacher. Thanks a lot.
Thanks so much for the kind words, Manjula. Happy learning 🙂
Is stock market learning important for future.pls answer Kartik sir
Its good to know since all your savings will get invested in the market in some form or the other.
sir the explaination of upper circuit and lower circuit is not give in the modules which we download, please check.
Will do.
Is it possible to explain below in layman’s? Especially this “You sell the stock at Rs.425, and 2 days later assuming the stock trades at Rs.405, you repurchase it.
If you realize the trade’s first leg was to sell at Rs.425, and the second leg was to buy the stock at Rs.405. This is always the case with shorting – you first sell at a price you perceive as high to buy it back at a lower price at a later point in time.”
——————————————————————————————————————————————–
The concept of shorting is very counter-intuitive simply because we are not used to ‘shorting’ in our day to day activity unless you have a trader mentality 🙂
Going back to stock markets, think about this straightforward transaction – on day 1 you buy Wipro shares at Rs.405, two days later (day 3) the stock moves, and you sell your shares at Rs.425. You made a profit of Rs.20/- on this transaction.
In this transaction, your first leg was to buy Wipro at Rs.405, and the second leg was to sell Wipro at Rs.425, and you were bullish on the stock.
In the future, on day 4, the stock is still trading at Rs.425, and you are now bearish on the stock. You are convinced that the stock will trade lower at Rs.405 in a few days. Now, is there a way you can profit out of your bearish expectation? Well, you could, and it can be done so by shorting the stock.
You sell the stock at Rs.425, and 2 days later assuming the stock trades at Rs.405, you repurchase it.
If you realize the trade’s first leg was to sell at Rs.425, and the second leg was to buy the stock at Rs.405. This is always the case with shorting – you first sell at a price you perceive as high to buy it back at a lower price at a later point in time.
You have actually executed the same trade as buying at Rs.405 and selling at Rs.425 but in reverse order.
Think of buying a stock at 100 and then selling the same at 105. You made a profit of 5. Likewise, if you sell first at 105 and buy back at 100, you still make 5 as a profit.
Response to Ashish – Shorting a stock means you are bearish on the stock, hence, you sell it first at a perceived higher price and later when the price falls you buy it back. For example, let’s say the current stock price of L&T is Rs 1,500 and you based on your technical analysis expect the stock price to fall below 1490 in the next three days. Hence you could sell the stock at 1,500 today and buy it back after three days at 1,490 (if your prediction came out true). Therefore, you would make a profit of Rs 10 on the trade.
A ‘leg’ of the transaction basically means the particular position taken in the transaction. Above, Karthik said “trade’s first leg was to sell at 425…”, here the leg is the sell side and when you buy back the stock later, it is the second leg. The term ‘leg’ is simply used to denote the trade position (buy/sell).
You may also wonder how can we sell a stock first if we don’t own it? – This is basically an arrangement with the broker with whom you have a trading account. The broker can help you facilitate the sale but you have to buy it back later at the prevailing price. Shorting is a high risk trading strategy and is not suggested for beginners. Hope this helps.
Refer this for more insight on shorting –
https://support.zerodha.com/category/trading-and-markets/trading-faqs/general/articles/short-sell-shares-in-eq-and-f-o-segments
How to buy preference shares? Can it be bought from zerodha?
Can someone plz list names of some good preference shares that are listed in the stock market?
Preference shares are usually privately placed, not via markets.
@Akash:
I believe ‘long’ and ‘short’ have different meaning in options world. ‘long’ refers to buying a call(bullish) or buying a put(bearish) option. ‘short’ refers to selling a call(bearish/neutral) or selling a put(bullish/neutral).
I think we can generalize the long and short as below:
long :- buy first – risk losing the value
short :- sell first & collect money – losing the value of stock or option premium is favorable.
Karthik or any other expert can confirm.
Absolutely, thats correct.
I want to understand how stock exchanges facilitate the borrowing and returning of a stock.
I am guessing there are some stock owners who will ask the broker to make their shares available for the borrowing, and will ask for some money in return. The exchange makes them available on the market after that, and people use it to do their shorting etc and pay a fee for shorting which is more than buying a stock directly.
There must be a third person involved here who would have to bear the loss, if the above logic is not the case. Right?
Please share some resources to know how exactly it works.
Anmol, if you are asking in the context of intrday trading, then none of this is applicable because the trade is squared off intraday hence no obligation is carried out by end of day. If you are talking about shorting overnight, then yes, all the things you mentioned kicks in. YOu can read more about it here – https://www.nseindia.com/market-data/securities-lending-and-borrowing
That said, SLBM is not very popular yet.
Can I buy or sell shares in upper circuit and lower circuit?
Nope, the stock is in-circuit because of the fact that it cant be traded.
Just curious, why can’t we have a circuit breaker system in the world of cryptos?
No idea about cryptos 🙂
hii karthik,i didn’t get the concept of face value..can u plz make me understand in a better way? and what is the difference between the fac value and share price?
When a company is started, the company’s shares are also created. We need to assign some value to the shares as it cannot be zero. Usually, most companies start with a share price of Rs.10, and this is called the face value.
In the section “Face value of a stock”, it is mentioned that the dividend paid is 1260%s. Either the variable s is undefined or there is a typo or am I missing something?
Which variable is undefined?
It is really useful tutorial to understand the stock market. Thanks a lot Karthik!
Happy learning, Saravana!
Hi,
Is the different types of orders covered anywhere?
Yes, in this series – https://www.youtube.com/watch?v=GcZW24SkbHM&list=PLX2SHiKfualH9XGLv9r1sdKucoGky35J7
Thanks Karthik 😊
Happy learning!
Hello Karthik,
What are the consequences of holding a short position for long term? Would an interest be applied? Would the broker square off the short position automatically. Is there an order type that can allow us to hold a short position for long term?
Thank you!
Nothing as such, but why would you want to do that?
For example, the FV of Infosys is 5, and if they announce an annual dividend of Rs.63/-, the dividend paid is 1260%s (63 divided by 5).
can you please elaborate this especially, 1260%s.
Dividends are paid on the face value. So if Infy announces 63 then over a FV of 5, the dividend is 1260/63 = 1260%.
HI, can you say if is it possible for a student to earn like pocket money from trading daily or weekly with a very low investment like 2000 or 3000 Rs? If yes, what are the options?
Nope, please dont try this. It can lead to undesired outcomes.
Why isn’t the Open not same as Previous close? What happened in between that the prices changed? Thank you 🙂
Sentiments change frequently 🙂
what happens when I short sell a stock and dont buy it again before the market closes? will the person buying the stock get the stock? will I have to pay a penalty or something?
It will get auctioned off, Animesh. Check this – https://support.zerodha.com/category/trading-and-markets/trading-faqs/general/articles/what-is-short-delivery-and-what-are-its-consequences
Let sme thing about money marketing
Whats the context Dhruv? Are you talking about money market instruments? If yes, please do check the Personal finance module.
What is meant by face value? .please explain clearly @karthik sir
Face value is the notional value of the share at the time of creation. We are doing a detailed video on this topic, please do keep an eye here – https://www.youtube.com/@varsitybyzerodha
Can you please explain market segment in simple terms. like what all things are there in ETFs and what is equity derivaties?
Manoj, different instruments are traded in the market like Futures and Options, Equity, Bonds, Currencies, and commodities. Each instrument belongs to different segments in the market. For example Equities is traded in EQ segment. Futures and Options are traded on the F&O segments.
Capital market segments offer tradable securities, such as stocks and exchange-traded funds (ETFs). So if you were to buy or sell shares of a company, you are essentially operating in the capital market segment. Shorting stocks, too, come under the capital market segment. The cash market is sometimes referred to as the spot market.
I didn’t understand the context of the last line in the description of capital markets. It seems incomplete.
Ah, yes. Sorry about that. Cash market (also called spot market) is a segment within the capital market. Capital markets consists of many such segments like, derivatives segment, currency, commodities, debt etc.
in Upper and lower circuit says that exchange sets up price band, its said due to excess volatility, what happens if it reacts excessively, what is the disadvantage ?
It leads to increased speculative activity leading to higher volatility, which is not good for small retail investors. Hence the circuits.
can you please explain with an example how and why it is not good for small retail investors.
Sorry, I lost the context. What are you referring to?
What happens if I don’t purchase the shares that I had shorted on the same day?
Check this Swaraj – https://support.zerodha.com/category/trading-and-markets/corporate-actions/general/articles/what-is-short-delivery-and-what-are-its-consequences
Does intraday trading actually yield profits for some individuals? rising pnl scams are creating doubts if anyone even exists who makes profits intraday. Any advice or motivation would help
They do, but they are a small number and usually maintain a low profile 🙂
Since shorting is not allowed in the CNC segment in equity, how do the instutionalized traders or the big “bears” of the market take profit ? Do they too operate in the intraday segment?
They do it through a mechanism called Securities lending and borrowing – https://www.nseindia.com/market-data/securities-lending-and-borrowing
Thank you Sir
Happy learning 🙂
In intraday trading, if one holds the long position and does not square off before the day ends what would happen?
please can anyone explain what is forex trading?
Basically forex is trading currency pairs, all about it here – https://zerodha.com/varsity/module/commodities-currency-government-securities/
What exactly is an instrument ? Is it anything that can be bought or sell in the market ? Not getting clear picture of it..
Shreyas, in our context a financial instrument is a stock, bond, futures, or options contract. Basically any financial product.
UC stands forUpper Circuit
LC: Lower Circuit
But can anyone please explain following:
NH:
ATH:
nATH:
UC NH:
Sorry, can you share more context?
What is Face value of a stock and its difference from market value?
You can check this – https://www.youtube.com/watch?v=EAucHlFstdU
How upper and lower circuits are decided?
Based on the stock’s volatility.
Hypothetically you know that the stock price is abot to free fall for next 10 days. What would you do? (Basically since you can’t short overnight)
Short Futures, buy puts, hedge your portfolio, prep cash for buying more of portfolio stocks….or you can choose to do nothing. All are valid things to do when you anticipate a big fall.
Sir,
1.why ETFs are called in-kind distributions,or
2.why do they not involve actual ownership of securities or
3.if ETFs are funds that just track the movement of securities,how money is generated,coz there is no buying nor selling to generate income?
4.In ETFs,investors buy a share of the fund, which owns the shares of the underlying companies.the same thing is in mutual funds, isn’t it,the funds are used to a investment of a bunch of securities?
5.Industry ETFs are also used to rotate in and out of sectors during economic cycles,what does that mean,sir?
1, 2 ) I’m not sure about this query.
3) Its usually a basket of securities, so there is re-balancing involved.
4) No, companies dont get any benefit as such.
5) It just means that the ETF is tracking and reflecting the performance of the industry.
Stocks profit income are taxed at either ordinary income tax rates or capital gains rates.
Sir,which is better?
At capital gains rate. Also, there is no question of which is better – we have to comply with the law of the land.
Sir,this question out of this chapter,
#I ask this because in Google,I saw ,You can’t directly invest in the S&P 500 because it’s an index, but you can invest in one of the many funds that use it as a benchmark, tracking its composition and performance.”,why index trading not possible for S&P 500 index,whereas we can trade bse,nse indexes?
S&P 500 is not listed in India right, so you cant really trade it. But you can invest in S&P 500 via Indian funds which invest in S&P 500.
Sir,forgot to add to the above question,
2.What are the other factors that takes a company to make it to S&P 500 other than market cap?
3.The index actually has 503 components because three of them have two share classes listed,two share classes listed means?
1) Ah not sure. Maybe you should check the eligibility criteria. I’m sure there could be some trading volume criteria as well.
2) Not sure, I need to look it up as well 🙂
Sir,you mentioned in the answer like”you can invest in S&P 500 via Indian funds which invest in S&P 500″,can you name few credible fund terminals operating on S&P
I think Motilal has a fund, can you please look up on that?
In shorting, when I sell wipro at Rs.425 and then buy at Rs.405. Who will be willing to buy shares when wipro is at Rs.425, if they also knows that it will go to Rs.405 and they can also buy at that price.
Different opinions is what makes markets 🙂
What happen if I buy a share for delivery (long term) and sell it on the same day?
It will be treated as an intrday trade.
if a person is short selling, the loss can be up to infinite. So what’s the guarantee that the short seller would have enough balance when the loss goes till, say 200 or 300%
The margining system will take care of that and ensure your losses dont exceed the margins you have.
What happens if i short a stock and it hits the upper limit or lower limit ?
If you are unable to exit, then the position will be auctioned.
If I buy a share and sell it the same day, then will it be counted as 1 in volume or 2.
Volume will be 2.
According to phone example, we receive the money first from the person who intends to buy. So, during short position the money first receive is from the intended buyer or from the stockbroker?
In reality, you when you short, you park the margin required for the position and the margin amount is released when the position is squared off.
Hello Zerodha Team,
Thank you for collating this wonderful set of material.
My question is about Upper and Lower Circuit.
What happens when a stock price reaches the upper/lower circuit? I have heard that the trading of that particular stock is stopped for a defined time interval. How does this help to control the stock price ? There is a possibility that after the Trade Halt period, the stock price may again reach the circuit limit.
Check this, Chirag – https://support.zerodha.com/category/trading-and-markets/product-and-order-types/product/articles/circuit-limit-hit-intraday-product-type
I think there is a typo in the line
The cash market is sometimes referred to as the spot market.
I think its stock market.
No, it is spot market. But all segments collectively is called ‘Stock market’.
that was nice tutorial
thanks
Happy learning!