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Pitfalls of Short Selling in Stock Market

Posted By On 5/08/2009 02:02:00 PM Under

1. Short selling means that one is selling the stock in market without having the physical delivery. The said action is undertaken when one is bearish on the prospects of a stock.

2. However before indulging in short selling please understand the pitfalls as the strategy can back fire
(a) A few sections of investors consider short selling akin to gambling.
(b) One is working with odds stacked against the seller as if strategy misfores than the loss can can be infinite.
(c) One has to be dependent on the brokerage house as shorting invoves using the borrowed money as it is undertaken under the umbrella of margin money. One may have to even take loans at higher rates to fulfill the margin call.
(d) Short squeezes can wring the profit out of your investment.
(e) It may happen that your strategy is right but the same is being executed at the wrong time which will lead to booking the losses.

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