Long-Short Ratio

Dictionary Says

Definition of 'Long-Short Ratio'


The amount of a security available for short sale compared to the amount that is actually short-sold. The long-short ratio can be used as an indicator for a specific security, but can also be used to show the value of short sales taking place for a basket of securities or for the market as a whole. The ratio is impacted by the demand for securities borrowing for short sale, and by the supply of securities available for short sale.

Investopedia Says

Investopedia explains 'Long-Short Ratio'


The long-short ratio is considered a barometer of investor expectations, with a high long-short ratio indicating negative investor expectations. For example, a long-short ratio that has increased in recent months indicates that more long positions are being held relative to short positions. This could be because investors are uncertain how new short sale regulations will affect the market, or that volatility is making short sales more risky investments.

Hedge funds typically make up a large portion of the short sale market. This is related to their long/short strategies. If hedge funds reduce their short sale positions, as happened during the 2007-2008 financial crisis, the long-short ratio will increase. Regulators consider short selling a factor that led to the financial crisis, and have increased scrutiny on the industry.

The ratio can be affected not only by the demand of investors interested in borrowing securities for short sale, but the supply of securities available for short sale. Pension funds, for example, typically hold securities long-term. If they are unwilling to lend, then high demand from hedge funds will not matter.

comments powered by Disqus
Hot Definitions
  1. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  2. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  3. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  4. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public.
  5. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public.
  6. Maritime Law

    A body of laws, conventions and treaties that governs international private business or other matters involving ships, shipping or crimes occurring on open water.
Trading Center