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Finance GlossaryShort Selling
Short Selling
Definition of Short Selling
Short selling is a popular intraday selling strategy. Through this strategy, traders can sell shares that they currently don’t own. They expect the prices to fall, so they borrow the shares and sell them at the current price. The goal is to buy the stock back later at a lower price. However, traders can incur significant losses if the prices rise instead. That’s why risk management is crucial in short selling.
Related Terms
Runaway Gap
A runway gap or a continuation gap sometimes appears in the middle of a strong price trend. It reflects that the stock price is gaining sustained momentum. Often, these gaps show up when traders rush in. As a result, the prices can move sharply higher or lower. A runaway gap sends a strong signal to those who follow trends. It confirms the strength in price and suggests that the healthy momentum may continue for some time.
Futures Expiry
Futures expiry is the date on which the derivative contract’s terms and conditions must be fulfilled. Alternatively, it’s the day on or before which the trader must square-off their futures contract to avoid delivery. In India, futures expire on the final Thursday of the expiry month.
Opening Range
The Opening Range is the range of trading prices (from the highest point to the lowest point) of a security in the initial period, after the market opening. In the Indian stock market (NSE and BSE), the opening period is defined as the first 15 - 30 minutes of trading. Traders, especially day traders, pay close attention to the opening range because it often sets the tone for the rest of the trading day and offers potential support and resistance levels.
Interest Coverage Ratio
Interest Coverage Ratio (ICR) is used to determine the likelihood of a company’s ability to pay interest on existing outstanding debt. A low ICR typically indicates that a company is less likely to pay interest.
In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.
In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.
Bought Out Deal
A bought-out deal is a stock offering where an investment bank buys the entire issue of shares from a company. In turn, the investment bank will attempt to sell the shares to other investors. A deal of this kind has two benefits:
- The company need not worry about subscription as the investment bank will purchase the entire offering
-
The investment bank can negotiate with the company and get the shares at a discount
That said, there are risks to a bought out deal like:
- It is up to the investment bank to sell the shares to investors in order to recoup the principal or make a profit
- The investment bank also runs the risk of receiving no interest in the shares from other investors
- Guarantee purchase
If the issue size of the bought-out deal is large enough, the investment bank may team up with others to fulfil the purchase.
Paid-Up Capital
Paid-Up Capital is the amount of money that the company has received from its shareholders in exchange for the company's stock. It is thus the portion of the authorised capital which has actually been subscribed by the investors and paid for. Paid-up capital of the company appears in the balance sheet.
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