What is Short Sale Uptick Rule?

Uptick or Plus Tick rule was a rule imposed by Securities and Exchange Commission (SEC) on short sellers. This rule necessitates traders to enter short sell orders only at a price higher than previous trade price or in an uptick. Short sale uptick rule was introduced in 1934 and was withdrawn on July 6, 2007.

The idea behind short sale uptick rule was to prevent sharp declining of the price of an instrument by preventing short-sellers from adding momentum to an already declaiming instrument. The effectiveness of this rule was always under contradiction; where opponents saying there is no evidence that short selling on uptick slowed up the speed of declining instrument. And the supporters of the rule saying elimination of uptick rule may result in increased volatility in price of less traded instruments.

Short sale uptick rule was not applicable for trading all financial instruments. It was there for most stocks and funds. The rule was not applicable for some highly liquid trading instruments like currencies, some ETFs, Futures and SSFs (Single Stock Futures). Traders can trade these instruments at a downtick and/or at zero tick.

NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage