Hi, let’s say I don’t own any stocks of XYZ and I see an opportunity for shorting, so I sell shares via MIS and then buy them back when the price is low. Will I be levied any DP charges in this case?
Also, can I use MIS to avoid DP charges in case I do own shares of XYZ?
No DP Charges will not levied as the shares are not actuaalu in your demat account. DP Charges are levied as they debited by DP in your Demat Account so the Charges to debit your demat account occurs.
Thanks for the info, can you clarify the other point I mentioned? Is MIS always transferred from other’s accounts (not my demat)? From whom am I exactly borrowing when I am selling a stock without owning it? I think it comes from Zerodha’s collective pool of MIS trades… am I right?
When you short in the spot market, you obviously sell first. The moment you sell a stock, the backend process would alert the exchange that you have sold a particular stock. The exchange does not differentiate between a regular selling of stock (from DEMAT account) and a short sale. From their perspective they are of the opinion that you have sold the shares which would obligate you to deliver the same. In order to do so, you need to keep the shares ready in your DEMAT account by next day. However the exchange would know about your obligation only after the market closes and not during the market hours.
the exchange anyway checks for the obligations after the market closes. Hence before the exchange can run the ‘obligation check’ if one were to cover the short position (by squaring off) then there would be no obligation at all by end of the day. Hence for this reason, shorting in spot market has to be done strictly as an intraday trade without actually carrying forward the delivery obligation.
By this i can say that it not comes under zerodha’s collective pool but through depositories the trxn works.
Got it, thanks, that’s a smart system. By the way, what is “spot market”? Is it the same as “stock market”?
The spot market is where financial instruments, such as commodities, currencies, and securities, are traded for immediate delivery. Delivery is the exchange of cash for the financial instrument. A futures contract, on the other hand, is based on the delivery of the underlying asset at a future date.
Exchanges and over-the-counter (OTC) markets may provide spot trading and/or futures trading.
Stock market is whole whereas spot market is a part of it.