How to short sell?

You can short sell through intraday equity, Futures and Options (F&O) contracts, or Stock Lending and Borrowing (SLB).

What is short selling?

Short selling involves selling first and buying back later when you expect prices to fall.

• In equity: You sell shares first and buy them back later at a lower price within the same trading day.
• In futures: You sell a futures contract first and buy it back later to close your position.
• In options: You buy put options or sell call options to profit from falling prices.

Short selling in equity

You can short-sell stocks using intraday orders only. Here's how it works:

1. Sell first using an intraday (MIS) order.
2. Buy back the same quantity before market close.
3. Your profit or loss depends on the price difference:
   • Buy price lower than sell price = profit
   • Buy price higher than sell price = loss

You must close your positions on the same trading day before 3:20 PM, as you cannot hold equity short positions overnight. If you fail to do so, Zerodha may square off your position automatically, and auto square-off charges of ₹50 + 18% GST will apply. If you cannot exit due to circuit limits or low liquidity, this may result in short delivery, which can lead to penalties or auction losses.

How to hold short positions for days or weeks

Since equity short selling limits you to same-day positions, you can use Futures and Options (F&O) for extended short positions:

• Futures contracts: You can short-sell directly by selling the futures contract and holding positions overnight.
• Put options: You can buy puts to profit from falling prices.
• Call options: You can sell calls to profit from sideways or falling markets.

You can learn more about F&O trading by visiting the Futures and Options module on Varsity.

Stock Lending and Borrowing (SLB)

If the stocks you want to trade do not have futures and options contracts available, and you want to hold your short position for more than a day, you can consider SLB for extended short selling. Only securities included in the approved list for SLB are eligible for lending and borrowing.

How shorting works with SLB

• You borrow shares from other investors.
• You sell borrowed shares in the market.
• You buy back shares to close your position.
• You return shares to lenders and pay borrowing fees.

You can learn more about SLB by visiting the Stock Lending and Borrowing (SLB) section.

Choosing the right method

• For same-day trading: Equity short selling with intraday orders
• For overnight positions: Futures for direct short exposure, put options for limited risk, or call writing for upfront premium
• For stocks without futures and options: Stock Lending and Borrowing (SLB) for extended short positions

Risks

• Futures short selling, call writing, and SLB can result in losses that exceed your initial investment if prices move against your position
• Put option buying limits your loss to the premium paid, but can result in 100% loss of premium due to time decay or unfavourable price movements
• If you do not close intraday positions before the square-off time, Zerodha may square them off and apply charges of ₹50 plus 18% GST
• Futures and option selling require you to maintain adequate margins. If your margins fall short, your positions may be squared off
• Low trading volumes can make it difficult for you to enter or exit positions at desired prices, especially during volatile market conditions