I understand that short interest is the number of shares that is currently short sold. A high short interest indicates that the share price is expected to fall. All good, but what is the word 'interest' doing in the phrase 'short interest'. Interest is money earned on a fixed income investment, which is completely unrelated.
All good, but what is the word 'interest' doing in the phrase 'short interest'. Interest is money earned on a fixed income investment, which is completely unrelated.`
Everyone that is short is paying interest to the owners of the shares that the short seller borrowed. Although this quells your conundrum, this is also unrelated to the term.
Interest in this context is just the number. In the options market, each contract also has an open interest, which tells you how many of that contract is being held. For your sake, think of it as "how many are interested", but really its just a completely different context.
Merriam-Webster has the following definitions of the term, "Interest":
- a (1) : right, title, or legal share in something (2) : participation in advantage and responsibility b : business, company
- a : a charge for borrowed money generally a percentage of the amount borrowed b : the profit in goods or money that is made on invested capital c : an excess above what is due or expected
- : advantage, benefit; also : self-interest
- : special interest
- a : a feeling that accompanies or causes special attention to an object or class of objects : concern b : something that arouses such attention c : a quality in a thing arousing interest
While 2a may be the definition you know, there are more than a few others here that are worth understanding as there can be various contexts so that it isn't as simple as you may think.