Posted in Finance, Accounting and Economics Terms, Total Reads: 323
Definition: Double Up
Double up is an investment strategy whereby the investor doubles up his current position of a asset by buying more of that asset. He does this even when there is adverse price movement in the opposite direction.
This is a strategy is risky as compared to normal buying of securities, as in this case the portfolio is not diversified, instead the securities that are already present are doubled. So basically this builds up on the risk. If the security clicks the person holding the security can earn more, but if it doesn’t click then the person loses in a big way. So why does one double up, instead of diversifying the portfolio, the reason is that because of reverse price fluctuation, the prices have dropped, but he believes that this is short term and would eventually correct itself. So In this way he earns a huge amount. SO basically doubling up involves a lot of risk, but it can definitely yield a huge amount of returns.
Let us understand this concept through examples, simply an investor buys 100 shares of ING companies for Rs100 and as the share price drops to Rs90, he doubles up and buys 100 more shares, thinking that eventually the price will increase to 100 or beyond. So he is doubling up as he feels confident that that the prospects of shares are good in the long term. So this technique can be understand differently as, a investor buys initially only 50 share for price Rs. 500, but as he sees that the price drops he invests by buying 50 more shares. So if and when share prices increases to more than Rs. 500, he would sell all his sales and would result in substantial return. So this technique can be used successfully to short sales as well.