Can You Short Sell in PSX? How Short Selling Works in Pakistan

Short selling means selling first and buying back later, so that you profit if the price falls. Many beginners ask: can we short sell in PSX? The answer is yes, but not in the way you might buy and sell shares normally, and it carries extra risk. This guide explains how it works in Pakistan.

What is short selling?

In a normal trade you buy at Rs 100 and hope to sell higher. In a short trade you sell at Rs 100 first, hoping to buy back at, say, Rs 90 and keep the Rs 10 difference. If the price rises instead, you lose, and in theory there is no limit to how high a price can go.

Can you short sell in the PSX ready market?

In the ready market (the normal market where you buy and hold shares), PSX’s investor guide states that blank sales are prohibited. A blank sale is selling shares you do not own. So an ordinary investor cannot simply sell shares they do not hold in the ready market.

How traders go short: the futures market

In Pakistan, short positions are usually taken through the futures market, where contracts on selected shares are traded for settlement at a later date. In futures you can open a sell position without owning the shares, by depositing margin with your broker. If the price falls, the position gains; if it rises, it loses.

Key points about futures:

• Only selected, more liquid shares have futures contracts.
• You need a full (standard) account with futures access. Simplified Sahulat accounts are limited to the ready market.
• Positions require margin, and losses can exceed what you expect if the price moves sharply against you.
• Contracts expire, so positions must be closed or rolled over before expiry.
• Regulators can apply extra rules, such as position limits or uptick rules, especially in volatile markets.

Why short selling is riskier than buying

• When you buy, the most you can lose is what you paid. When you short, losses grow as the price rises.
• Margin calls can force you to add money or close at a loss.
• Sudden good news can make prices jump overnight.

Because of this, a stop loss is even more important on a short trade than on a normal one.

When do traders consider going short?

Usually when a share is in a clear downtrend: making lower highs and lower lows, failing at resistance, and showing bearish signals such as a bearish engulfing pattern. Shorting against a strong uptrend is one of the most common ways traders lose money.

This article is for education only and is not investment advice. Short selling and futures trading carry a high level of risk. Market rules change, so confirm current requirements with your broker, PSX or the SECP before trading.