Cash Trigger

Posted in Finance, Accounting and Economics Terms, Total Reads: 308
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Definition: Cash Trigger

Cash trigger is a condition or a situation which prompts an investor to trade or make a specific deal in the stock market he is trading in.


Cash trigger, by its words means a condition leading the investor to take a particular action which generates some cash inflow for him. It can be anything, from buying a security, selling a stock, or dealing in the derivatives of securities. The cash flow is generally for short term when such a trigger occurs and it depends upon the investor whether to take advantage of the trigger or not. It might be the case that the investor thinks of a better opportunity in the future than the cash trigger and thus does not take any action in spite of the trigger.


Example: Suppose an investor has a stock worth Rs 30, and its price rises to Rs 50. Thus owing to this cash trigger, the investor can sell that stock and earn a profit of Rs 20, or he could also sell calls against the stock to earn additional profit.


A closer real life example would be the IPO (Initial Public Offering) of Alibaba, one of the leading e-commerce companies of the world. Yahoo owned more than 22% stake in Alibaba before the IPO. IPO of Alibaba was one of the biggest cash triggers for Yahoo and during the IPO , Yahoo sold its 140 million shares in the the Chinese e- commerce giant’s IPO in September 2014 and gained around $6.3 billion, which formed a major part of the company’s $6.8 billion net earnings. Thus Yahoo took full advantage of the cash trigger it had from Alibaba’s IPO.

 

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