Posted in Finance, Accounting and Economics Terms, Total Reads: 260
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.
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.