In short selling, you sell the stocks that you do not hold to make money out of falling stock prices.
Traders usually plan to square off their positions on the same day. If price of the stock goes down, they make the profit by buying the shares at low prices.
But consider the scenario where stock prices rise. In that case, traders will make a loss. To avoid this loss, traders can borrow stocks for certain duration from brokerage firms for a fee and hold their position for some more days in the anticipation of fall in stock prices.
Thus borrowing of the stocks help traders meet their obligations to buy the security. NSE and BSE have started this practice of securities borrowing since 2015.
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Traders usually plan to square off their positions on the same day. If price of the stock goes down, they make the profit by buying the shares at low prices.
But consider the scenario where stock prices rise. In that case, traders will make a loss. To avoid this loss, traders can borrow stocks for certain duration from brokerage firms for a fee and hold their position for some more days in the anticipation of fall in stock prices.
Thus borrowing of the stocks help traders meet their obligations to buy the security. NSE and BSE have started this practice of securities borrowing since 2015.
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