Short Selling Explained: How It Works, What It Costs, and the Rules in Singapore

Want the daily routine? Get the free 15-Minute Swing Trader’s Checklist. Get it free →

Last updated: 16 October 2026 · By Spencer Li, CFTe

---

Short selling is selling a stock you do not own, in the hope of buying it back later at a lower price. You borrow the shares, sell them now, and return them when you buy back. If the price falls, you keep the difference. If it rises, you pay it.

It sounds like buying in reverse, with 2 big differences. A short seller carries 3 costs a buyer never sees, and the loss has no ceiling. In Singapore it is legal, with 2 rules every short seller must follow: tell your broker the order is a short sale, and report a large short position to MAS.

How does short selling work, step by step?

In 4 steps.

1. Borrow the shares. Your broker arranges to borrow them from someone who owns them.
2. Sell them. You sell the borrowed shares at today’s price and receive the cash.
3. Wait. You owe the lender a number of shares, and their price can move either way.
4. Buy back and return. You buy the shares in the market, at whatever the price is then, and hand them back.

MAS defines it in its Guidelines on the Regulation of Short Selling: “Short selling is the sale of capital markets products that the seller does not own at the time of the sale.” It then separates 2 kinds. A covered short is one where “the seller has borrowed or made arrangements to borrow the capital markets products before the short sale is made.” An uncovered short, “also referred to as `naked’ short selling”, is one where nothing was borrowed.

Why can a short seller lose more than they put in?

Because a price can rise without limit. When you buy a stock, the most it can fall is 100%. When you short one, there is no top. Here is the same position from both sides, in % of the position’s value at the start.

So the best a short can do is 100%, and the worst has no floor. That is why short sellers use stops, and why the size of a short matters even more than the size of a long.

What are the 3 extra bills of a short?

It is my name for the costs a short seller pays and a buyer does not. I call them the 3 extra bills.

1. The borrow fee. The lender charges for the shares, usually as a yearly rate charged daily. On easy-to-borrow stocks it is small. On stocks many people want to short, it can be high, and it can rise while you hold.
2. The dividends you owe. If the company pays a dividend while you are short, the dividend goes to whoever bought your shares. The lender still expects it, so you pay it from your own pocket.
3. The squeeze and the gap. When a heavily shorted stock rises fast, short sellers rush to buy back at the same time, which pushes the price higher still. That is a short squeeze. A good news gap at the open does the same in one jump, and your stop fills wherever the price lands.

Add the 3 bills to the table above, and a short needs the price to fall by more than the bills just to break even.

[INFOGRAPHIC: the 3 extra bills as 3 stacked receipts, borrow fee, dividend owed, squeeze or gap, on top of a short position]

If you want a daily routine that sizes every trade from its stop, long or short, the free 15-Minute Swing Trader’s Checklist is at the end of this post.

Is short selling allowed in Singapore?

Yes. MAS and SGX said so directly in a 2014 consultation paper: “we have not imposed legislative restrictions on short selling. Instead, we have mitigated potential disruptive effect through other means”. MAS also sets out why it allows it: “Short selling allows for more efficient price discovery, increases market liquidity, and facilitates risk management”.

There is no separate ban for retail investors. The rules apply to anyone who short sells SGX-listed shares, business trust units or REIT units, and there are 2 of them.

1. Mark the order. You must tell your broker that an order is a short sale. MAS’s guidelines say the broker in turn “must, before or at the time of the short sell order, disclose to the approved exchange that the order is a short sell order.”

2. Report a large short position. A short position must be reported to MAS once it reaches “the lower of: (a) 0.2% of total issued shares in the relevant class of shares or units… (b) SGD2,000,000 in aggregate value.” The report is due “within two business days after position day.”

What happens if you short without borrowing?

CDP buys the shares for you, and you pay for it. This is the naked short MAS describes. MAS’s guidelines say the “cost of purchase and an additional penalty is charged to the seller who failed to deliver the securities.” Under CDP Clearing Rule 6.7A.1, the fine on the clearing member can be “$1,000 or 5% of the contract value of the undelivered securities (whichever is higher)”, and brokers can pass it on.

That is why the practical limit on shorting SGX shares is the borrow. Whether your broker lends a given stock is its own call, and many smaller stocks cannot be borrowed at all. How SGX settlement and buying-in work in more detail is in how SGX trading works.

What are the other ways to profit from a falling price?

There are 3 common ones, and each trades one set of risks for another.

• A CFD. A contract for difference lets you sell first without borrowing any shares, on margin. You still pay a holding cost and any dividend adjustment, and the margin can be called. The basics are in what CFDs are, and the margin side is in CFD margin calls.
• A put option. A bought put gains when the price falls, and the most you can lose is what you paid for it. Time works against you, though. See how call and put options make or lose money and the options trading guide.
• An inverse fund. Some exchange-traded products are built to rise when an index falls. Many reset daily, so over weeks they can drift away from the index move you expected.

Do you need to short sell at all?

Plenty of traders never short a stock. Personally, I use shorts mostly as a hedge, to reduce risk on a portfolio of longs when the market turns, and most of the trades in my log are long. Short selling is a tool with sharper edges than buying, and the 3 extra bills mean it has to work harder to pay.

If you do short, start from the borrow. Know who is lending you the shares, what it costs each day, and what happens if they want them back. A short is a loan you owe in shares, and every rule in this post exists to make sure that loan gets repaid.

The wider picture of stocks, CFDs and which tools suit which goals is in the ultimate guide to stocks and CFDs trading.

FAQ

What is short selling in simple terms?

Short selling is selling borrowed shares now and buying them back later to return them. You profit if the price falls in between, and you lose if it rises.

Is short selling allowed in Singapore?

Yes. MAS has not imposed legislative restrictions on short selling. You must mark short sell orders to your broker, and report a short position to MAS once it reaches 0.2% of the issued shares or SGD 2 million, whichever is lower.

What is naked short selling?

A naked or uncovered short is a sale made without borrowing the shares or arranging to borrow them first. On SGX, shares not delivered on time are bought in at the seller’s cost, with a penalty on top.

How much can you lose short selling?

In theory, without limit, because a price can keep rising. A short position’s best case is a 100% gain if the price goes to zero.

Can retail investors short sell SGX stocks?

There is no rule against it. In practice it depends on whether your broker can borrow the stock for you. CFDs and put options are other ways to take a short view.

Go deeper

The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that keep you in the game. Enter your email and we’ll send it over:

We use your email address to send you the checklist, then emails about trading and our courses. Unsubscribe any time. Privacy policy.

---

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe). His trade log is public: every trade since April 2024, dated, losses left in.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

Want the daily routine? Enter your email for the free 15-Minute Swing Trader's Checklist.

Free 5-page PDF, then occasional trading emails. Education only, not financial advice. Unsubscribe anytime. Kit stores your email in the US: see our privacy policy.

Want to learn the full method? The Trading Mastery Program teaches the 4 strategies I have traded since 2011. It suits beginners and experienced traders.

Rather follow the trades as they happen? Daily Trading Signals is our Telegram channel: my trade ideas with entry, stop and exit, and every trade is public.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.