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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » How Shorting practically used in the system.

How Shorting practically used in the system.

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aj


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
People were talking about shorting in different places in the last few days.

Does anybody have experience how it really works practically? For example in buying and selling stocks we put orders and they get matched. There we put order with the symbol and price. They get matched.
But for shorting how does it work practically in the automated system? How do you find somebody to agree with your terms? How do you find and negotiate with another party? I can't see how it can be done like order matching.

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
In shorting you borrow a share from someone at an interest rate. Then you sell it in the market. Buy it back later and give it back to the borrower

aj


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I've read about it all those years but only have invested in CSE. So haven't seen it practically working.
So let's say I calculate JKL would be 120 in 2 months. Now it's 160. SO instead of a bid order I put a 'burrow' order, giving a date when I will buy and return, and somebody 'lends' it with interest (who get the interest, the stock owner or broker?). I pay the amount after 2 months at the current market price. It would be nice somebody can explain how it works in other stock markets practically.

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@aj wrote:I've read about it all those years but only have invested in CSE. So haven't seen it practically working.
So let's say I calculate JKL would be 120 in 2 months. Now it's 160. SO instead of a bid order I put a 'burrow' order, giving a date when I will buy and return, and somebody 'lends' it with interest (who get the interest, the stock owner or broker?). I pay the amount after 2 months at the current market price. It would be nice somebody can explain how it works in other stock markets practically.

Let's say you want to short JKL. Normally there is a pool of jkl stocks out for borrowing. These are usually shares held by management, as they never sell. So u use your software and borrow x amount of shares from this pool. It's like getting a loan at this point. Now the shares are there in your portfolio. Then you sell these shares at market price, let's say 160 rs. 2 months later you buy back these shares at 120 and hand them back to the original owner. so your profit is 40 rs minus whatever interest you paid on the share.

aj


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Thanks Mono. One more thing. Is this duration (in this case planned 2 months period) Is that "specified" at the borrowing time (you have to specify the date)? That is then I have to return after 2 months exactly. Or is it that I can return later even after 6 months (while I'm paying interest)

Also how does the system ensure they're returned? (What if the person is broke, to buy back)

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@aj wrote:Thanks Mono. One more thing. Is this duration (in this case planned 2 months period) Is that "specified" at the borrowing time (you have to specify the date)? That is then I have to return after 2 months exactly. Or is it that I can return later even after 6 months (while I'm paying interest)

The borrowing time isn't specified they can ask for the share at any time. What you would do then is borrow from someone else and give it to him.

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