Can I short futures contracts without owning the underlying shares?
Yes, you can short futures contracts without owning the underlying shares. This is possible because futures contracts are settled in cash, so there is no need to hold the actual asset in your Demat account.
How it works?
- Shorting a futures contract means selling it first, expecting the price of the underlying asset to fall.
- If the market moves in your favour (i.e., prices fall), you can buy back the contract at a lower price and make a profit.
- If prices rise, you incur a loss, which can exceed the initial margin.
Key points
- No need for share ownership: Futures contracts don’t require physical delivery for most assets.
- Cash settlement: Positions are marked-to-market daily and closed in cash on expiry.
- Margin requirements: You must maintain the prescribed margin as security for the trade.
What if...
| Scenario | Resolution |
|---|
| I short without owning shares | Perfectly valid in futures, as physical possession isn't needed due to cash settlement. |
| Market moves against my short | You’ll incur losses and must ensure margin maintenance to avoid square-off. |
Last updated: 27 Jun 2025
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