Nov 22, 2011

Posted by in Penny Stock | 0 Comments

A Guide To Selling Short Penny Stocks

Is it a good idea to sell short penny stocks?

People who are getting started on the stock market may be wondering if it is a good idea to sell short penny stocks. The truth is that there are some advantages to choose a route that is different to the traditional “buy low and sell high” strategy. Selling penny stocks short is something that should only be attempted by intermediate and advanced investors as it requires some knowledge and skill.

What does the term selling short penny stocks mean?

Penny stocks are stocks which traders can buy and sell for under a dollar. The term short penny stocks essentially means selling stocks with a commitment to purchase them back at a future date.

Traders sell short penny stocks as they are betting that the stocks in question will decrease in value in between the time they sold the penny stocks and repurchased them. The profit the trader will make will be the difference between the price the stocks were sold at and the price they purchased them back at.

How to successfully sell short penny stocks

The goal of selling short penny stocks is to sell high and buy low. This is the complete opposite of the “buy low, sell high” method. The reason that every trader is not attempting to make money this way is that it can be complicated. Because of this only experienced and knowledgeable traders should attempt to do this. Even these traders should approach this trading method with care.

Investors need to keep in mind that penny stocks are highly volatile and thinly traded. These two characteristics make them the riskiest investment in the current market. Due to the lack of reporting requirements for the companies listed on the boards the risk investors take is much higher than with other stocks.

The best way to get started with this investment strategy is to get some practice. There are numerous brokers that offer mock marketplaces to their customers. Many newbies use this software to learn how to trade stocks without investing any real money. In fact some of the most successful traders today used these programs for months before they started trading on the real market. As there is little margin for error with penny stocks it is unwise to try this strategy without some prior experience. While selling short penny stocks is risky, it can also yield significant profits if the trader knows what he or she is doing.

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