Two common words in the stock market are ‘long’ and ‘short’. In simple words, ‘long’ means buying, and short means ‘selling’. You bought shares of TCS on February 14, 2023, for Rs.3500. This means your position is ‘long’ in terms of this share. On February 16th you sold the shares at Tk 3550 and took home a profit of Tk 50 per share. That is, you took a long position in TCS shares and then shorted them. First bought and then sold. Thus profit is possible only when the share price increases. This is the common method of profiting from the stock market.

But what can happen, resulting in profits when the share price is falling? The answer is possible. Let’s say Tata Steel’s price per share is Rs 110 and you think this price is too high and its price will go down. You sold the share at Rs.110. The question is, where do you get 100 shares? Someone (broker) lent 100 shares here. NSE’s Security Lending and Borrowing (SLB) platform can be used to borrow shares subject to conditions. In this case, the share borrower has to deposit 100% margin. Now according to your idea, the share market price decreased to 100 takas, you bought shares at the market rate and returned the borrowed 100 shares. That is your profit is 10 taka per share – total 100 X 10 (110-100) = 1000 taka. Selling shares (short) before buying shares is called ‘short selling’. Thus it is possible to profit by ‘short selling’ in falling markets. Is short selling good or bad in the larger sense?

There is disagreement on this. When there is a hint of recession in the economy, i.e. it is thought that the total income, profit, and operational cash flow of the companies will be less due to various reasons, then the stock market will go down as a result, if there is no obstacle regarding short selling, then recession. will accelerate further. The share price will cause extreme disruption and instability. In 2008, short selling was banned in the US due to the economic recession. But some opposites are important. When the market is excessively bullish, the share price rises to a level, which is not in line with the financial reality of the company, then short sellers start selling the shares so that the share price starts to fall and the share price is in line with the real economic situation of the company. That is, short selling helps in price discovery – the share price falls and the short seller buys cheap shares and takes home the profit. Research suggests that a ban on short selling does not help price stability, but rather hurts accurate pricing by disrupting liquidity.