Uptick Rule

The uptick rule requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. The uptick rule prevents short sellers from increasing downward momentum when the price of an asset is already experiencing sharp declines. Some liquid securities like financial futures or ETFs like the QQQQ and SPY are exempt from the uptick rule.

The uptick rule was eliminated by the SEC in 2007 but restored in 2009 during the financial crisis.

A trader that wants to evade the uptick rule can also buy puts to create a short position.

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