Short Selling

Facts for Prelims

Short Selling

News: Short seller Hindenburg Research on January 25 disclosed short positions in Adani Group, alleging stock manipulation and accounting fraud in its latest investigative report. 

Background:
• “Buy low, sell high” is the traditional investment strategy in which one buys a stock or security at a particular price and then sells it when the price is higher, thereby booking a profit. 
• This is referred to as a “long position”, and is based on the view that the price of the stock or security will appreciate with time.

What is Short selling?
• Also called shorting, is a trading strategy based on the expectation that the price of the security will fall. While fundamentally it is based on the “buy low, sell high” approach, the sequence of transactions is reversed in short selling — to sell high first and buy low later. 
• Also, in short selling, the trader usually does not own the securities he sells, but merely borrows them.