What is a Zero Downtick?

Commonly known as a zero-minus tick, the zero downtick is an investment strategy that is often employed in currency trading. While the approach may be employed in several different types of investment markets, the actual structure of the zero downtick often makes it less relevant to markets other than the Forex market, and in fact may be impeded by specific regulations that govern some markets. Still, the zero downtick is a method that many investors can employ successfully from time to time.

The basis for the zero downtick involves the careful structuring of two sets of transactions. Each set will include two individual transactions that are conducted using the same price. The second set in the series will involve a price that is slightly less than the previous set of transactions. As an example, the first set may feature a price of 30, while the following set will sport a price of 28. The resulting downswing in the price is referred to as a downtick. When conducted in sets of two, the zero downtick is created, since there is no change in the difference between the price of the current transaction and the previous one.

The reasoning behind the zero downtick is to create a situation where a short is created. Depending on the conditions that impact certain markets, it may be impossible to structure a short with the use of a zero downtick. In these environments, the effect can only be achieved by creating a zero uptick. Zero upticks work in a reverse order to zero downticks, a progression that may or may not be appropriate for the market in question.

One important aspect to keep in mind is that the use of shorts to realize a profit may be restricted in some markets. The currency market generally is not impacted by restrictions or regulations related to the use of a short, although there is the potential for regulations on a national level to have some small degree of influence. Thus, the Forex market is an ideal environment for the implementation of either a zero uptick or a zero downtick.