Uptick
Candlefocus EditorThe minimum tick size for stocks trading above $1 is 1 cent, meaning that the price of a stock must move at least 1 cent (or a fraction of a penny) up or down to be considered an uptick or downtick.
An example of an uptick in the stock market would be if an investor placed a bid to purchase a stock and their order was filled at a higher price than the previous trade. This would indicate that the stock was seeing buying pressure and, in the long run, the price was likely to continue to climb.
In 2010, a new alternative rule was introduced, which requires short-sellers to only execute trades on an uptick if the security has already fallen 10% in a day. This rule was introduced to give additional protection to a security and prevent any further price declines from occurring as a result of short selling.
An example of a downtick would be if an investor placed a bid to sell a stock and their order was filled at a lower price than the previous trade. This would indicate that the stock was seeing selling pressure and, in the long run, the price was likely to continue to slip.
In conclusion, the uptick and downtick rules exist to ensure fairness and stability in the stock market by preventing any sudden price drops caused by short-sellers. It also provides investors with an indication of the buying or selling pressure in the market. The stability afforded by the uptick and downtick rules also allows investors to have more confidence in the markets and their holdings.