Short Interest Ratio

Posted in Finance, Accounting and Economics Terms, Total Reads: 203

Definition: Short Interest Ratio

Short interest ratio is an indicator of the sentiment that is calculated by dividing the short term interest by the average daily volume of a stock. This indicator can be used by both technical traders and fundamental traders for identifying the current prevailing sentiments in the market for the specific stock.


It is also known as the "short ratio".


Short Interest Ratio = (Short Interest) / (Avg Daily Trading Volume)



This ratio gives a number, which can used by investors for determining how long it shall take short sellers, in no. of days, for covering their entire positions when the price of a stock begins to increase. The short interest ratio might also be applied to entire exchanges for determining the sentiments of the markets as a whole. If an exchange has a very high short interest ratio, say of around five or more, it can be taken as a sign of bearish times ahead, and vice versa


It gives the number of days it takes an investor or short seller to cover their position when the stock price rises.



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