Term: Uptick Rule

The uptick rule is a restriction on when a trader is allowed to short sell a stock. Short selling means selling shares you don't own, borrowed from a broker, with the intention of buying them back later at a lower price. The uptick rule says that, under certain conditions, you can only enter a new short sale at a price higher than the last trade (or last different price), not on a falling tick.

The idea behind it is to stop short sellers from piling onto a stock that is already dropping and pushing it down further and faster purely through order-flow pressure. If shorts can only sell into strength (an uptick) rather than into weakness (a downtick), a stock in freefall gets some breathing room, because sellers can't just keep hitting the bid on the way down.

The nuance that trips people up is that this is not a blanket, always-on rule covering every stock every day the way it was in the original mid-20th-century version. Modern versions in most markets are typically "circuit breaker" style: they switch on only for a specific stock after it has already fallen sharply in a single session (something like a large percentage drop), and then they restrict aggressive downside shorting in that name for the rest of that day and sometimes the next. Outside of that trigger, shorting on a downtick is generally allowed.

Because the exact trigger percentage, the exact price test used, and how long the restriction lasts are set by regulators and exchanges and have been rewritten more than once, a trader should not assume a specific number is currently in force without checking. What matters conceptually is: it's a circuit-breaker-like brake on short selling during sharp declines, not a permanent tick-by-tick requirement on every short sale.