| When you have been trading in penny stocks for a | | | | margin account. |
| while it's time to try a few different strategies. | | | | How To Do It Right |
| Instead of choosing the traditional 'Buy low and sell | | | | As mentioned earlier, you have to be very careful |
| high' approach, you may want to choose to sell the | | | | when short selling penny stocks. Keep in mind that |
| stock short. This is a strategy for intermediate to | | | | penny shares are thinly traded and highly volatile, two |
| advanced investors and you should be very careful | | | | characteristics that make them one of the riskiest, if |
| while carrying out this trade. | | | | not the riskiest, investments in the market today. |
| How It Works | | | | Plus, you cannot discount that with certain trading |
| First, lets clarify what its all about. In simplest terms | | | | venues like the OTC-BB and the Pink Sheets, your |
| this strategy involves selling stocks with the | | | | risks are almost doubled because of the lack of |
| commitment to purchase them back at a future. | | | | reporting requirements for the companies listed on |
| As a trader, you are betting that the penny stocks in | | | | the board. |
| question will decrease in value between the time you | | | | On one side of the fence, you have traders who |
| sold the stock and the the subsequent repurchase. | | | | assert that the activity presents opportunities for |
| The profits will be the difference between the selling | | | | profits if and when done correctly. Again, the profits |
| price and the price you buy them back at. | | | | come from the difference in the high selling prices |
| The aim here is to make a profit between the two | | | | and the low buying costs. |
| prices with a slight difference from the buying and | | | | One the other side, you also have traders who |
| selling approach. This time, the goal is to sell high and | | | | strongly caution against short selling penny stocks |
| buy low - a reversal of the common approach to | | | | because of the unlimited potential, not for great |
| trading stocks, whether we are talking about penny | | | | profits, but for great losses. Think of this scenario: |
| or blue chip shares. | | | | You will sell 100 penny stocks at $6.50 per unit, which |
| At this point you are probably wondering - "How can | | | | will rise to $85 per share in the succeeding period. |
| I sell shares that I have never bought in the first | | | | Since you are legally required to repurchase the |
| place?" Well, you have to think of it as borrowing the | | | | penny stocks, you would need $85,000 to do so. |
| stocks from your broker. It's like being in debt till you | | | | This means that you have just lost a total of |
| close the position or selling the stocks back to the | | | | $84,350! Even in paper trading, that amount is still a |
| broker. To short sell stocks you have to have a | | | | considerable loss to your imaginary wealth. |