Given the downtick rule, how can you short sell a declining security? Wait for a momentary rally? How long would such a rally have to continue to free the security for short selling?
I thought the rule was that if a security had gone down in value at the last trade, it could not be short sold... Do I have that part right? Edit: I just found my answer in investopedia...
If my memory is correct, I had read that the 'uptick' rule was implemented to prevent traders from jumping in on a stock that was in the midst of a horrible downward spiral. The uptick rule requires at least one up tick of the stock before you can short sell it. Also, you cannot short some stocks because the shares you are shorting have to be borrowed, and some stocks just don't have any available. I also heard that the uptick rule was recently removed. Most people don't short sell anyways but if you be careful not to get squeezed too badly if the stock turns against you.
Yea, this is so necessary on the NYSE. The Nasdaq doesn't have an uptick rule and as we can see, daily hundreds of Nasdaq stocks tumble in a horrible spiral of death. The QQQQs drop 90% some days.
traderich was right; that WAS the reason why it was implemented. the feeling was that the big players could drive a stock to 0 if they wanted, and crash things. it's only taken 70+ years for it (maybe) to get reversed.