Zero Plus Tick
Zero Plus Tick
Understanding Zero Plus Tick
The term Zero Plus Tick, also known as "Zero Uptick", is a concept used in the world of trading. It refers to a situation where a security's trade occurs at the same price as the preceding trade, but at a higher price than the last trade of a different price. This term is often used in the context of short-selling and is essential to understand for both beginners and seasoned traders.
The Mechanism of Zero Plus Tick
In a zero plus tick scenario, if the last price alteration was an increase, the following trade, even if it is at the same price, is considered a zero plus tick. This is because the trade did not result in a decrease of the price of the security. By contrast, a "Zero Minus Tick" is when the current transaction takes place at an equal price to the previous, but lower than the last trade at a different price.
The Significance of Zero Plus Tick in Trading
The whole notion of Zero Plus Tick was more relevant when the Uptick Rule was in effect by the U.S. Securities and Exchange Commission (SEC). The rule, eliminated in 2007, prevented short-sellers from initiating their sale unless the last price change of the security was positive, or an uptick. Therefore, under the Uptick Rule, a zero plus tick trade would permit a short sale.
Although the Uptick Rule no longer applies, understanding the concept of Zero Plus Tick is still beneficial. It can provide a deeper insight into the market dynamics affecting security prices, and thus be a valuable tool in a trader's arsenal.
Example of Zero Plus Tick
For example, if stock X previously traded at $20 and then traded again at $20, it would be a Zero Plus Tick situation if the trade prior to these two was lower than $20. Despite the price not increasing, it's still considered an uptick because the price did not decrease.
Conclusion
In conclusion, a Zero Plus Tick represents a price stability following a price increase and is a concept crucial to understand for anyone participating in or studying the stock market. Awareness of such terms and conditions can lead to more strategic trading decisions and improved trading outcomes.
