In normal stock trading, investors buy first and sell when the price increases. In short selling, the opposite is true. They sell first, expecting the price to fall, and then buy back at a lower price to make up for the loss.
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The Nepal Securities Board is preparing to implement the method of 'short selling', which allows investors to earn profits even when the market is falling. This is a method in which investors borrow and sell the securities of the company concerned when the market signals a decline and buy them back when the market declines.
This method is practiced in most countries including India and China. Gopal Bhatta, Chairman of the Nepal Securities Board, said this at the meeting of the Finance Committee under the Federal Parliament on Wednesday.
For example, the shares of company 'A' are currently being traded at 1,000 per share. You believe that its price will fall to 800. In such a situation, investors can adopt the short selling method. According to which you borrow 100 shares from a broker or another investor. Or, companies are opened with the permission of the regulatory body for share lending. You borrow a certain number of shares from that company and sell them for 1,000. After a few days, the price dropped to 800. At that time, you can buy 100 shares from the market for 800 and repay the loan.
In this way, you can make a profit by selling shares even when the market is down. However, the risk is the same. If the market does not fall as expected by the investor, if it rises further, the investor may not benefit but may even suffer a loss. However, this is a very popular method for investors who are fully informed about the stock market.
Through this, long-term investors, mutual funds, insurance companies or other institutional investors can lend their shares for a certain period.
In the Finance Committee meeting on Wednesday, Board Chairman Bhatta expressed his commitment to create a mechanism for 'short selling' within three months. He said that if short selling is implemented, since transactions can be made even based on the expectation of a price decrease, liquidity in the market will increase, the pricing process will be effective and a professional trading culture will develop.
In normal stock trading, investors buy first and sell after the price increases. In short selling, the opposite is true. They sell first based on the expectation that the price will fall and then buy it cheaply to settle the account.
