What is Flip?

A flip is a sudden shift in Investing positioning. It refers to the purchase of a security or asset with the intention of selling it for a quick profit rather than holding on to it for a longer period of time and allowing its value to rise. To put it another way, the ultimate goal is to make quick profits. Flipping is a fast-paced kind of speculating.

In the investing Industry, it has a variety of connotations. It includes Initial Public Offering (IPO) investing, Real Estate investment, technical trading and investment management. Let’s dive into the deeper understanding of the context.

Contextual Understanding

A Market flip, or reversal of one's position, can be a profitable strategy to earn profits from dynamic trends. A flip is frequently considered as a short-term tactic; however, this is not always the case. Let’s take a closer look at how the term 'flip' is used in finance in the sections below.

1. IPO Investing

An IPO takes place when a company goes public to raise funds. The company offers shares to the public before listing them on any stock exchange. During the IPO phase, the market price of shares is low to ensure people are purchasing the shares or not. Once the initial offering is successful, the market price of shares rises within a week of listing. Some people buy the shares during IPOs and sell them as soon after getting a good profit; these people are termed flippers. This is one context having the same dynamics as the term ‘flip’.

2. Real Estate Investment

In this context, the investor buys or controls assets for a limited period of time, makes improvements to them, and then sells or flips them for a profit. In residential house flipping, an investor tries to get the best deal on the house. This investor frequently has the desire and capacity to renovate the property in order to increase its worth. Once the renovation is done, the investor relists the house for a higher price and sells it, pocketing the difference as profit.

3. Technical Trading

Technical trading is the technique of analysing an asset's future price movement using charts to find buying and selling opportunities. Investors look for evidence of convergence or divergence on stock or index graphs, which might suggest buy or sell signals. Based on price movement, a technical trader might change his or her position from net long to net short or vice versa. A flip is often linked with a move from having more long positions to having more short positions or vice versa in technical trading.

4. Investment Management

Flipping is occasionally employed by macro funds that aim to follow broad market movements. If a macro fund manager feels a specific sector's risk of loss is significant, he or she can opt to shift assets to a more profitable sector. Investors who manage their portfolios using a macroeconomic perspective can also employ this sort of flipping. Certain risks can be mitigated by switching from at-risk sectors to sectors with higher return potential.

The Bottom Line

Flipping has definitely proved fortunate for many, though one must take a proper analysis before investing. Sometimes it can be a risky affair; you can’t be guaranteed that the price of assets will appreciate within a short timeframe. The context discussed in this article is just a few of the common examples where the term flipping is used. There are many other examples like car flipping, cryptocurrency flipping and so on. Understand the market, then invest smartly.