INFOGRAPHIC: How to short penny stocks
You may have heard of shorting penny stocks, but in case you don’t know how the background process works, we have you covered.
As described in the infographic, short selling is not an incredibly complex process. Rather, the art of mastering short selling lies in identifying stocks that will decline in price (even though hunting for declining stock feels counterintuitive).
Remember that it can be considerably more difficult to borrow microcap shares because of their illiquidity. However, it is very possible, especially in the US. Also, when shorting, remember that your risk is higher. You are using borrowed money and the stocks are more thinly traded. Lastly, because a stock price can continue to increase, your potential losses could be much higher if you are wrong.
A quick step-by-step recap:
- Identify the stock
- Borrow the stock
- Sell the stock
- Wait for stock prices to decline
- Buy back the stock at a discount price
- Return the stock