What Is an Uptick?

Uptick describes an increase in the price of a financial instrument since the last transaction. An uptick occurs when a security’s price rises in relation to the last tick or trade. An uptick is sometimes referred to as a 澳洲幸运5官方开奖结果体彩网:plus tick.

How an Uptick Works

The minimum 澳洲幸运5官方开奖结果体彩网:tick size for stocks trading above $1 is one cent. A stock that goes from $9 to at least $9.01 would be considered to be on an uptick. It would be on a downtick if it goes from $9 to $8.99.

A stock can only experience an uptick if enough investors are willing to step in and buy it. Consider a stock that's trading at $9/$9.01. Sellers will have little hesitation in “澳洲幸运5官方开奖结果体彩网:hitting the bid” at $9 rather than holding out for a higher price if the prevailing 澳洲幸运5官方开奖结果体彩网:sentiment for the stock is bearish.

Potential buyers will probably be content to wait for a lower price given the bearish sentiment and they may lower their bids for the stock to $8.95. This lower bid will likely be snapped up if the stock's sellers significantly outnumber buyers.

The stock may trade down to $8.80 in this manner without an uptick. The selling pressure may have eased up at this point, however, because the remaining sellers are willing to wait. Buyers who think the stock is cheap may increase their bid to $8.81. It would be considered an uptick if a transaction occurred at $8.81 because the previous transaction was 𒉰at $8.80.

Types of Upticks

Several terms contain the word "uptick." They include zero upticks which refers to a transaction executed at the same price as the trade immediately preceding it but at a price higher than the transaction before that. 澳洲幸运5官方开奖结果体彩网:Uptick volume refers to the number of shares traded while a 澳洲幸运5官方开奖结果体彩网:stock price is rising. And there's the 澳洲幸运5官方开奖结果体彩网:uptick rule.

Special Considerations

The significance of an uptick in financial markets is largely related to the uptick rule. This directive was originally in place from 1938 to 2007. It dictated that a 澳洲幸运5官方开奖结果体彩网:short sale could only be made on an uptick. It was introduced to prevent 澳洲幸运5官方开奖结果体彩网:short sellers from piling too much pressure on a falling stock price.

Short sellers can hammer the stock down relentlessly in the absence of an uptick rule because they're not required to wait for an uptick to sell it short. Such concerted selling may attract more bears and scare buyers away, creating an imbalance that could lead to a precipitous decline in a faltering stock.

Alternative Uptick Rule

The Securities and Exchange Commission (SEC) introduced an “alternative uptick rule" in February 2010 that was designed to promote market stability and preserve investor confidence during periods of volatility.

The rule states that short-selling a stock that's already declined by at least 10% in one day would only be permitted on an uptick. This will hopefully give investors enough time to exit long positions before bearish sentiment potentially spirals out of control, leading them to lose fortunes.

Most securities are covered by the rule. The alternative uptick rule would apply to short sale orders for the remainder of the day as well as the following day when it's activated.

Example of an Uptick

Stock ABC is currently priced at $15.50. Sentiment on the stock is positive because the company has come out with a new product that's expected to outperform all competitors. Investors are bullish on the stock and they start purchasing it. The stock goes from $15.50 to $15.60 in one transaction. That's an uptick.

The Bottom Line

An uptick is an increase in a stock's price by at least one cent from its previous trade. Traders and investors look to upticks and downticks to determine what price a stock may be moving toward and what might be the best time to buy or sell a security.