Can I Short Sell In Delivery Trading

Last Updated: 12 Aug 2025

Before we understand short selling in delivery, let us spend a moment understanding the rolling settlement system in India. Indian markets currently operate on a T+2 rolling system. That means if you buy or sell a stock in the morning and do not square off before the end of trade on the same day, then it compulsorily goes into delivery.

If you sell and don’t square off before the end of trading on the same delivery, you need to give delivery of shares. If you cannot give shares, it becomes a short delivery. Short selling in delivery can have a steep cost, as in such cases the stock could be for auction, and you may end up bearing a huge loss. But that is another matter.

What Is Delivery Trading?

Delivery trading is a buy-and-hold approach in which you purchase shares and take actual ownership of them in your Demat account. Settlement in India follows the T+1 cycle, so the shares reach your account one working day after the trade. Because you become the registered owner, you are entitled to dividends, bonus issues and voting rights.

Unlike intraday trades, there is no obligation to square off positions the same day; you may hold the stock for days, months or years, depending on your goals. You must pay the full transaction value upfront; no high leverage is available, making delivery trading popular with investors seeking long-term capital appreciation and lower day-to-day stress compared with rapid-fire intraday activity.

Short Selling in Delivery

In the Indian stock market, intraday trading allows traders to buy and sell, or sell and buy, within the same day. However, if you sell shares for delivery without actually possessing them in your Demat account, it results in a situation called short delivery or short selling in delivery.

Under the current rolling settlement system (T+2), when you sell shares on trade day (T day), you must transfer those shares to the exchange within two working days (T+2 day). If you fail to deliver the shares on time, for instance, selling 500 shares of Tata Motors without holding them, this is considered short delivery.

Since the buyer has already paid for these shares, the exchange steps in to ensure settlement. Your shortfall triggers an auction process, where the exchange buys the required shares from the market, often at a higher price, to fulfil the buyer’s delivery. The resultant auction loss (difference in price and any penalties) is debited to your account.

To minimise such risks, most online broking platforms now prevent you from selling more shares than you hold in your Demat account. However, short delivery might still occur in BTST (Buy Today, Sell Tomorrow) trades. In BTST, if your purchase doesn’t get delivered to your Demat account as expected (perhaps due to a seller’s short delivery upstream), and you’ve already sold those shares, you could inadvertently face a short delivery penalty.

Short selling in delivery happens when a trader sells shares for delivery without having them in their Demat account on the T+2 day. This results in an exchange-level auction, with any financial losses passed on to the trader responsible for short delivery. Proper monitoring and understanding of settlement timelines are essential to avoid these risks.

Delivery Trading Strategies

Short delivery is more of a procedural problem. It is also instructive to look at what the delivery trading strategies are. For taking delivery trading, traders can adopt a trading strategy or an investment strategy that is long-term in nature. Alternatively, traders can adopt a growth approach to delivery or a value approach to delivery. The choice is huge, and the choice is entirely in the hands of the trader.

What are the Charges for Delivery Trading

Delivery trading entails brokerage and a host of statutory levies like STT, GST, stamp duty, exchange charges, SEBI turnover tax, etc. Normally, most brokerages charge a higher brokerage for delivery trading and a lower brokerage for intraday trading. However, of late, the discount brokers have turned the model on its head. They are charging for intraday trading and F&O trading, but keep delivery trading free of cost.

What Happens If You Try to Short-Sell in Delivery?

Can we short sell in delivery? The answer is no. India’s rolling T+1 settlement requires that a seller actually deliver the shares on the settlement day. If you sell shares you do not already own and cannot borrow through the Securities Lending & Borrowing (SLB) system, you create a delivery failure called short delivery. Short delivery meaning refers to the situation where the exchange cannot credit the buyer’s Demat account because the seller did not provide the shares.

When can we do short selling in delivery? Never in the normal cash market. The moment an uncovered sale slips past market close, the exchange marks it for auction. On T+1, the clearing corporation buys the required quantity in a separate auction market, often at a premium. The defaulting seller bears:

• Auction premium (difference between auction price and original sale price).
• Penalty fees are levied by the exchange.
• Possible brokerage penalties and trading-account restrictions.

If the auction also fails (rare illiquid stocks), the exchange cash-settles the buyer at the highest circuit-limit price while debiting the seller for the difference.

Can we short sell in equity delivery? Only if you have pre-borrowed shares via SLB; otherwise, the position is treated as intraday and must be squared off before close. Platforms usually block accidental shorts, but BTST (buy today, sell tomorrow) trades still risk short delivery if the original buy itself fails in settlement.

Short selling in delivery, therefore, converts a speculative idea into a high-risk, penalty-prone event rather than a profit tool. Traders wanting to bet against a stock should use intraday MIS orders, futures, options or SLB borrowing instead.

Where Is Short Selling Allowed?

Short selling stock market India is permitted but ring-fenced:

• Equity cash segment: Allowed only in stocks that are SLB-eligible. Retail and institutional investors may short intraday but must square off or arrange borrowed shares before settlement; naked positions are disallowed.
• Futures & Options segment: You may freely initiate short positions because the derivative contract itself handles settlement synthetically. Hence, no physical shares change hands until expiry in stock-settled options or futures.
• Commodity & currency derivatives: Similar derivative rules apply – shorts are integral to contract structure.
• Global markets: Jurisdictions such as the US (SEC Regulation SHO) and EU (ESMA) permit covered shorting with locate/borrow requirements; Hong Kong restricts the practice to a designated list.

Short sell delivery trading is thus impossible without borrowing. Exchanges worldwide demand either a pre-borrow (covered short) or an intraday close-out to prevent systemic settlement failures. Regulatory bodies also wield emergency powers, such as temporary bans, during episodes of extreme volatility to contain systemic risk, underscoring that short selling is a privilege, not a right.

Conclusion

Short selling offers traders a way to profit from falling prices, but delivery trading relies on actual ownership. Mixing the two leads to settlement defaults, costly auctions and penalties. Always remember: Short selling in delivery is banned; to express bearish views, use intraday shorts, derivatives or borrow through SLB, and keep your delivery trades strictly for long-term ownership.

Frequently Asked Questions

What are the risks involved in short selling?

The biggest risk in short selling is that shares could go into auction and you may end up with huge auction losses.

Are there any extra charges for short selling?

The penalty for short selling is in the form of auction losses that the seller giving short delivery has to bear.

In what other segments can I sell short?

The easiest is to sell in intraday and buy back. It is possible to sell short and replicate the position using short futures or by using put options. They don’t have the risk of short delivery. It is also possible to borrow and sell short, but that is quite expensive and not taken off at a popular level.