Zero Uptick

By
Will Kenton
Full Bio
Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.
Learn about our editorial policies
Updated November 24, 2022
Reviewed by Akhilesh Ganti
Fact checked by
Katrina Munichiello
Katrina Avila Munichiello
Fact checked by Katrina Munichiello
Full Bio

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Learn about our editorial policies

What Is a Zero Uptick?

A zero uptick is a security purchase that is executed at the same price as the trade immediately preceding it, but at a price higher than the transaction before that. For example, if shares trade at $47 a share, and the following two trades transact at $47.03, the last of the two trades at $47.03 is considered to be a zero uptick. This was important for short-sellers trying to avoid shorting a stock on an uptick to comply with the uptick rule (although that rule is no longer in place).

Key Takeaways

  • A zero uptick is a security purchase executed at the same price as the trade immediately preceding it, but at a price higher than the transaction before that.
  • A zero uptick occurs instantly when a trade is made with qualifying characteristics based on the two transactions before it.
  • The qualifications of a zero tick trade include trades between buyers and sellers on security that make no change to the price of that security.
  • Zero upticks were often used by short-sellers to meet the uptick rule.
  • The uptick rule (also known as the plus tick rule) was a law established by the SEC that required every short sale transaction to be entered at a higher price than the previous trade—it was eliminated in 2007.

How a Zero Uptick Works

A zero uptick occurs instantly as a trade is made that has qualifying characteristics based on the two transactions before it. The qualifications of a zero tick include trades between buyers and sellers of a stock that makes no change to the price of that security.

Additionally, the trade before the no-change trade must make the price go higher than it was on the tick before. The following illustration displays each tick of the stock price of Exxon Mobil (XOM) during a one-minute span. The two ticks that would qualify as zero ticks are noted.

Zero Ticks on XOM
Zero Ticks on XOM.

A zero tick is allowable for initiating a short sell position. The technique of shorting on a zero uptick does not apply to all investment markets, due to various rules and regulations prohibiting or restricting such transactions. The Forex or foreign exchange market, which has limited restrictions on shorting, is among the markets in which the technique is more popular.

Special Considerations

The uptick rule is a former law established by the Securities and Exchange Commission (SEC) that required every short sale transaction to be entered at a higher price than the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1 and implemented in 1938. It prevented short sellers from adding to the downward momentum of an asset already experiencing sharp declines.

The uptick rule was eliminated in 2007. In 2010, the SEC put in place an alternative uptick rule (Rule 201 of Regulation SHO) that is only triggered when a security's price falls by 10% or more from the previous closing price. It then remains in effect until the close of the next day.

Uptick rules can be frustrating to short-sellers (people who are betting that a stock will fall) because they must wait for the stock to stabilize before their order can be filled. Some investors argue that uptick rules inhibit trading and shrink liquidity.

Shorting means an investor must first borrow the shares from someone who owns them. This creates demand for the shares. They argue that short selling provides liquidity to markets and also prevents stocks from being bid up to ridiculously high levels of hype and over-optimism.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. U.S. Government Printing Office. "Securities Exchange Act of 1934," Page 90. Accessed Sept. 12, 2021.

  2. U.S. Securities and Exchange Commission. "SEC Approves Short Selling Restrictions." Accessed Sept. 12, 2021.

  3. U.S. Securities and Exchange Commission. "Final Rule: Regulation SHO and Rule 10a-1," Page 1. Accessed Sept. 12, 2021.

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description