Short Sale Restriction Rule

Today I’m writing about SSR or Short Sale Restriction in stocks. With all the craziness we have seen lately in the Financial Market. A lot of new investors have come to the markets, that’s true. With GameStop, we knew something big was happening. But many of us didn’t expect AMC to explode like that. That’s why I want to talk about SSR, let’s start with what is a short sale restriction.

What Is SSR In Stocks?

A short sale restriction is a rule that says a trader can only short a stock on an uptick. This rule is also called the alternative uptick rule or by its official name SEC rule 201.

The alternative uptick rule came out in 2010, it’s pretty new. This rule 201 was released to prevent fast crashes and big dropdowns in the market. This also prevents down-trend volatility.

Basically what the SRR Rule says is that you can’t short a stock while it’s dropping down. Interesting right? I have not seen any rule that prevents traders to buy a stock while it’s going up.

How the SSR works in a Stock?

The way the Short Sale Restriction works is simple. The rule will restrict the short sales on a stock. Only if the price of the stock fall by 10% or more from the previous day closing price. This will last until the end of the next trading day.
This rule applies to any tradable equity securities.

Short Sale Restriction Example

Everything is better with an example, I know that. Let’s say you were trading a stock and the price goes up from $5 all the way to $7. The next day, the stock opens at $6.30 that’s a 10% down. And suddenly the price goes down for another 10%. This is where the SRR Rule takes action. Simple, right?

Conclusion on the Rule 201

Information and knowledge are some of the most important things for a trader. And this is sure some valuable thing to know. A good trade have a lot of stuff behinds, like a solid strategy (tested and tested until you feel comfy with it), news, knowledge and indicators. It’s no too complicated, either.

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