What it means
Every trade in a share happens at a price. When a trade price is above the previous trade price, it is an uptick, and when it is below, it is a downtick.
A trade at the same price as the one before is a zero tick, and it is a zero-plus tick if the last different price was lower. The concept became important because of short selling, which is borrowing shares to sell them in the hope of buying them back cheaper.
Regulators worried that heavy short selling in a falling market could push prices down further. In the United States, an uptick rule was introduced in the 1930s and required a short sale to take place on an uptick or a zero-plus tick.
That rule was removed in 2007, and after the financial crisis a narrower version was introduced that restricts short selling in a stock once it has fallen sharply in a day. Other markets have their own versions.
The details change, so anyone trading must check the current rules in the relevant market. Traders also use ticks as a measure of market mood.
Counting the number of upticks and downticks over a period shows whether buyers or sellers are more active, and the difference between them is called net ticks. Some market-wide indicators are built from the number of stocks trading on upticks against downticks.
Outside trading, uptick is a common business word. A finance director might say there has been an uptick in sales or an uptick in costs, meaning a modest increase.
The word implies a small and perhaps temporary move, so a large change deserves a different description. Used loosely, the word can mask the size of a change.
It is better to give the number, such as a 2% rise, than to rely on the word alone.
In practice
Real-world examples.
Example
A short seller wants to sell 5,000 shares of a company that has been falling. Under a rule that allows short sales only on an uptick, her broker waits until a trade prints above the last price. The order is then executed.
Example
A market analyst tracks the number of stocks on an exchange that traded on an uptick in the last minute. When upticks outnumber downticks by a wide margin for an hour, she notes that buying pressure is strong. She adds the observation to her intraday report.
Example
A chief financial officer tells the board there has been an uptick in customer returns of 0.5 percentage points, from 3.0% to 3.5% of sales. She asks the operations manager to investigate. By being precise, she avoids alarming the board unnecessarily, and she can show whether the rise is in line with last year's pattern.
Formula
Calculation
Net ticks = number of upticks - number of downticks
Suppose a stock trades six times at these prices: $20.00, $20.02, $20.02, $20.01, $20.03, $20.03. The second trade at $20.02 is above $20.00, so it is an uptick. The third trade is at the same price, so it is a zero tick. The fourth trade at $20.01 is lower, a downtick. The fifth trade at $20.03 is higher, an uptick, and the sixth is a zero tick. Upticks = 2, downticks = 1, so net ticks = 2 - 1 = +1.Case study
Seen in the real world.
Birchwood Securities is an illustrative, fictional brokerage whose compliance team monitors short sales. A trader asked to sell 10,000 shares short in a stock that had dropped 12% in a morning, while a restriction on short selling applied.
The compliance officer explained that the order could be executed only at a price above the current best bid, so it could add to demand and not accelerate the fall. The trader placed a limit order and waited, and it filled 40 minutes later after the price recovered.
The firm kept a log of the timings in case a regulator asked, and the head of trading reminded the desk of the rule at the next morning meeting. The illustrative lesson is that tick rules affect how and when trades can be executed, so traders need to know which rule applies.
Watch out
Common mistakes.
- Assuming that an uptick means a strong rise, when it can be as small as one cent.
- Thinking the uptick rule still applies everywhere in its original form, when markets have changed or replaced it over time.
- Using uptick in reports without a number, when this hides the size of a change.
Questions
People also ask.
What is a zero-plus tick?
It is a trade at the same price as the previous trade, where the last different price was lower.
Why were uptick rules created?
To stop short sellers from pushing a falling stock lower by selling aggressively into declines.
Is an uptick the same as a price increase?
Not exactly, because it compares one trade with the one immediately before, whereas a price increase usually compares across a longer period.
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