What is the “Short sale circuit breaker rule”?
"Summary: The phrase ""short sale circuit breaker"" rule normally refers to the SEC's recent adoption of a new version of the uptick rule. The new uptick rule triggers a ban on short selling when the stock drops a certain amount. The SEC defines the process like this: The ""circuit breaker"" is triggered for a security any day the price declines by 10% or more from the prior day's closing price The alternative uptick rule, which permits short selling only ""if the price of the security is above the current national best bid.""1 The rule applies ""to short sale orders in that security for the remainder of the day as well as the following day."" In general, the rule applies to all equities. 1) The national best bid is usually the bid price that you see in Level 1 data.   Example: If a stock closed at $100/share on Monday, the ""circuit breaker"" would be triggered if the stock traded at or below $90/share during Tuesday's session. Short-selling would be disallowed until the start of trading on Thursday unless the short-sell price is above the national best bid, i.e. on an uptick. Purpose: The stated purpose of this rule is promote market stability and preserve investor confidence by restricting potentially abusive short selling from driving prices farther downward during periods of increased volatility and downward price pressure. Whether or not such rules succeed is a matter of some debate, and the SEC removed similar uptick rules in 2006 because ""they modestly reduce liquidity and do not appear necessary to prevent manipulation."" Exceptions: There are a few exceptions to the uptick rule that mainly revolve around when the short sell order was placed or when the securities will be delivered."
"The IRS rules are actually the same.  26 U.S. Code § 1091 - Loss from wash sales of stock or securities In   the case of any loss claimed to have been sustained from any sale or   other disposition of shares of stock or securities where it appears   that, within a period beginning 30 days before the date of such sale   or disposition and ending 30 days after such date, the taxpayer has   acquired (by purchase or by an exchange on which the entire amount of   gain or loss was recognized by law), or has entered into a contract or   option so to acquire, substantially identical stock or securities,   then no deduction shall be allowed... What you should take away from the quote above is ""substantially identical stock or securities."" With stocks, one company may happen to have a high correlation, Exxon and Mobil come to mind, before their merger of course. With funds or ETFs, the story is different. The IRS has yet to issue rules regarding what level of overlap or correlation makes two funds or ETFs ""substantially identical.""  Last month, I wrote an article, Tax Loss Harvesting, which analyses the impact of taking losses each year. I study the 2000's which showed an average loss of 1% per year, a 9% loss for the decade. Tax loss harvesting made the decade slightly positive, i.e. an annual boost of approx 1%." You say you are underwater by $10k-15k.  Does that include the 6% comission that selling will cost you?  If you are underwater and have to sell anyway, why would you want to give the bank any extra money?  A loss will be taken on the sale.  Personally i would want the bank to take as much of that loss as possible, rather than myself.  Depending on the locale the mortgage may or may not be non-recourse, ie the loan contract implies that the bank can take the house from you if you default, but if 'non-recourse' the bank has no legal way to demand more money from you. Getting the bank to cooperate on a short sale might be massively painful.  If you have $ in your savings, you might have more leverage to nego with the bank on how much money you have to give them in the event the loan is not 'non-recourse'.  Note that even if not 'non-recourse', it's not clear it would be worth the banks time and money to pursue any shortfall after a sale or if you just walk away and mail the keys to the bank. If you're not worried about your credit, the most financially beneficial action for you might be to simply stop paying the mortgage at all and bank the whole payments.  It will take the bank some time to get you out of the house and you can live cost-free during that time. You may feel a moral obligation to the bank.  I would not feel this way.  The banks and bankers took a ton of money out of selling mortgages to buyers and then selling securities based on the mortgages to investors.  They looted the whole system and pushed prices up greatly in the process, which burned most home buyers and home owners.  It's all about business -my advice is to act like a business does and minimize your costs.  The bank should have required a big enough downpayment to cover their risk.  If they did not, then they are to blame for any loss they incur.  This is the most basic rule of finance. "From Pub 550: More or less stock bought than sold.   If the number of shares of   substantially identical stock or securities you buy within 30 days   before or after the sale is either more or less than the number of   shares you sold, you must determine the particular shares to which the   wash sale rules apply. You do this by matching the shares bought with   an equal number of the shares sold. Match the shares bought in the   same order that you bought them, beginning with the first shares   bought. The shares or securities so matched are subject to the wash   sale rules. You must match ""beginning with the first shares bought."" If only activity 1 & 4 happened, you'd have bought and sold stock with no wash sale. If you remove activity 1 & 4 from consideration because they are a ""normal"" or non-wash sale transaction, then the Activity 2 or Activity 3 trigger a wash sale. The shares in lot 1 are sold for disallowed loss, so the disallowed basis would be added to shares in lot 2 because lot 2 was purchased before lot 3. (hat tip to user662852 who had much better wording) Second example: Activity 5, 7, and 8 all together would not be a wash sale.   The addition of activity 6 creates a wash sale. The shares in Activity 5 are sold for a disallowed loss in Activity 7 & 8 because of the wash sale triggering purchase in Activity 6.   Activity 6 is where you add the disallowed basis because they are the ""first shares bought"" that cause the wash sale rule to be triggered." @BlackJack does a good answer of addressing the gains and when you are taxed on them and at what kind of rate. Money held in a brokerage account will usually be in a money-market fund, so you would own taxes on the interest it earned.   There is one important consideration that must be understood for capitol Losses.  This is called the Wash Sale Rule.  This rule comes into affect if you sell a stock at a LOSS, and buy shares of the same stock within 30 days (before or after) the sale.  A common tactic used to minimize taxes paid is to 'capture losses' when they occur, since these can be used to offset gains and lower your taxes.  This is normally done by selling a stock in which you have a LOSS, and then either buying another similar stock, or waiting and buying back the stock you sold.   However, if you are intending to buy back the same stock, you must not 'trigger' the Wash Sale Rule or you are forbidden to take the loss. Examples.  Lets presume you own 1000 shares of a stock and it's trading 25% below where you bought it, and you want to capture the loss to use on your taxes. This can be a very important consideration if trading index ETF's  if you have a loss in something like a S&P500 ETF, you would likely incur a wash sale if you sold it and bought a different S&P500 ETF from another company since they are effectively the same thing.  OTOH, if you sold an S&P500 ETF and bought something like a 'viper''total stock market' ETF it should be different enough to not trigger the wash sale rule.  If you are trying to minimize the taxes you pay on stocks, there are basically two rules to follow.  1) When a gain is involved, hold things at least a year before selling, if at all possible.  2) Capture losses when they occur and use to offset gains, but be sure not to trigger the wash sale rule when doing so. "To be able to truly short something you technically need to be able to borrow the security so you can sell it.  There needs to be a system for borrowing in place to be able to do this which is very robust for large U.S. stocks but doesn't exist for CDOs mainly due to the complex legal structures around them.   However, the word ""short"" is commonly used in finance to mean profiting from a loss of value of something.  So the use in the movie title, though a bit confusing, was fine. Credit Default Swaps are not technically insurance as you don't need own the thing you are ""insuring"" (and for a few other reasons).  However, I agree with the movie that thinking of them as insurance is a pretty good way to understand them.  As you are playing a monthly premium to for a contract that pays out when something goes very wrong.   However, the movie was a little fast a loose as CDS of various types were regularly traded well before the bubble even started.  Though maybe not that particular type of CDS.  So while they may have been ""expensive"" it was the easiest route and reasonable idea." I would suggest following your quote and having a read of the web page supplied, that buys then sells or sells short then buys (the same security on the same day) four or more times in five business days, ... So it is a two way transaction that counts as 'one'. The day trader in the article was engaging in short selling.  Short selling is a technique used to profit when a stock goes down.  The investor borrows shares of a stock from someone else and sells them.  After the stock price goes down, the investor buys the shares back and returns them, pocketing the difference. As the day trader in the article found out, it is a dangerous practice, because there is no limit to the amount of money you can lose. The stock was trading at $2, and the day trader thought the stock was going to go down to $1.  He borrowed and sold 8,400 shares at $2.  He hoped to buy them back at $1 and earn $8,400 profit.  Instead, the stock went up a lot, and he was forced to buy back the shares at $18.50 per share, or about $155,400.  He had had $37,000 with E-Trade, which they took, and he is now over $100,000 in debt. But by closing the short position the broker would still be purchasing shares from the market no? Or at least, someone would be purchasing the shares to close the short position. So, why doesn't the broker just let Client A keep their short position open and buy shares in the market so that Client B can sell them...I know it sounds a bit ridic, but not much more so to me than letting Client A borrow the shares to begin with!