| Let's start with the idea of short selling itself. | | | | time. The opposite is also true – if the ratio |
| This refers to the practice of selling something | | | | is low it can point to the belief among short sellers |
| you do not actually own yourself when you make | | | | that the stock will stay down instead of increasing |
| the sale. This is generally a financial product such | | | | in value. |
| as a particular type of share for example. | | | | The short interest ratio can therefore help you |
| But what is the short interest ratio itself? Simply | | | | gauge how short sellers view a stock and what |
| put, it is the volume of shares sold short that are | | | | may happen to it in the near future. You |
| outstanding for a particular company. This figure | | | | shouldn't use it as your sole means of making a |
| is then divided by the average daily volume of | | | | firm decision on which stocks to buy or sell |
| that stock. This gives you the ratio you need. | | | | though. Similarly if you are shorting stocks |
| This ratio is an important one to be aware of if | | | | yourself the ratio can be useful to know, but it |
| you are considering shorting stock yourself. It | | | | should not form the only part of the decision |
| gives you an idea of what may happen to the | | | | making process. |
| stock in the near future. It should be pointed out | | | | If you are new to this part of the stock market |
| that you should never take it as set in stone that | | | | it can pay dividends to work out the short |
| a particular event will happen; it merely gives you | | | | interest ratio in practice for a few different |
| a gauge of how much short seller interest there is | | | | stocks and then see what happens afterwards. |
| in any particular stock you are looking at. | | | | It gives you an idea of how the ratio works in |
| The ratio basically gives you an idea of what | | | | practice, and how often the results truthfully |
| short sellers think might happen with a particular | | | | indicate how the market will turn out. The more |
| stock. If the ratio is quite high it could indicate | | | | you can learn about the ratio the better, as it will |
| that short sellers think the price will improve over | | | | give you a greater understanding of how it works. |