Make Money Short Selling Penny Stocks

Short selling penny stocks is one way to make money when the stock market is down. Penny stocks are those that have a low value, typically below five dollars per share. Short selling penny stocks will require you to pay extreme attention to the details of the stock market, as you are essentially “betting” on the price of the stock falling. Given the frequent fluctuations the market sees daily, it can be a full-time job.

Getting Started Short Selling Penny Stocks

The first step in short selling penny stocks will be to find a broker that supports this type of trading. Some discount brokers will allow investors to short sell penny stocks that are popular, but generally, only specialized firms will allow short selling of all penny stocks. These specialized brokerage firms often come with higher priced commissions and a higher number of required trades per month. Investors wishing to short sell penny stocks should also have access to real-time stock market screens. In addition, most brokers that offer short selling penny stocks will require the investor to have a minimum amount of money in their account, typically at least $5000 to $10,000.

Tips for Short Selling Penny Stocks

The next step any investor should take when considering short selling is to make sure to carefully research the company the stock is from, to make sure that the outlook for the company is bad. In addition, watch price ranges in order to determine what your margin requirements will be. Look for stocks that go up in price based on press that is essentially “fluff,” such as wild claims of a product's effectiveness not backed by research, and then wait for the price to top out. Finally, only short sell penny stocks that are above $0.25, in order to avoid manipulation and meet margin requirements. In order to be successful at short selling penny stocks, an investor will have to be diligent with their research.

Short Selling Penny Stock Risks

As with any type of investment in the stock market, there is risk involved in short selling penny stocks. One of the negative aspects of this kind of stock trading is the large margin requirement required by brokers as collateral against losses. In addition, short selling penny stock comes with the risk of the charge of market manipulation, as these stocks tend to be a target of market manipulation by websites and funds. The investors manipulating the penny stock market have capital and price on their side, which means investors wishing to short sell them must be very careful with their research.

Short selling penny stocks will require you to find the right broker. Many brokerage firms will only allow short sells of the most popular penny stocks, and some brokerage firms simply do not allow this type of transaction at all. The other problem with short selling penny stock comes with finding enough shares to “borrow” in order to complete the trade. Only individuals with intimate knowledge of the stock market should attempt this method of investing.