With this post I aim to clear some of the haze and skepticism that surrounds short selling penny stocks. Here are some common frequently asked questions regarding the short selling of penny stocks.

Q: You can short stocks under $5?

A: Of course you can! For some reason many believe that you can’t short stocks just because they are penny stocks. You can make money shorting penny stocks just like many of you make money buying penny stocks. In many cases you can buy a penny stock and profit on the way up THEN short the penny stock and profit on the way down. It is a really simple concept and a definite must need strategy that you can add to your arsenal. The more trading strategies you have, the better, right?

Q: What brokerages allow me to short sell penny stocks?

A: You can only short penny stocks with a select number of brokerages. You’re typical Etrade, Scottrade, and Ameritrade aren’t going to let you short penny stocks. You need a brokerage like Thinkorswim, Interactive brokers, or Sogotrade. I will elaborate more on choosing the right brokerage for short selling penny stocks including the one I use in a post coming in the next few days. Stay tuned!

Q: Can I short with a cash only account?

A: No, you need a margin account to be able to short sell penny stocks. A margin account is required because when you short sell, you borrow shares of a penny stock that you don’t technically own.

Q: How much money do I need to short sell penny stocks?

A: That depends on the brokerage you use. Some brokerages require you to have as little as $1,000 dollars for a margin account and others require as much as $10,000 for a margin account. You can make money short selling penny stocks with as little as $500 and that’s the beauty of penny stock land, because it doesn’t take a lot to make a lot.

Q: Is short selling penny stocks legal?

A: Absolutely! Everything about short selling penny stocks is legal, all you’re doing is profiting from a drop in a stock price. The irony to this is that my strategy is to short sell illegal activity i.e. pumps and dumps where individuals illegally pump up a stock price. This happens all the time in penny stocks and is why it’s so easy to profit from short selling the “dump”.

Q: Is it risky to short selling penny stocks?

A: There’s always added risk when you short sell you’re borrowing shares that aren’t yours, so there is an added risk there. It’s really more intimidating as it sounds but you do have to be more careful. If you stick to the solid rules detailed in my FREE eBook you shouldn’t ever have a problem that involves trouble with paying back lost money.

Q: I heard short selling penny stocks is harder than buying penny stocks. Is that true?

A: Absolutely not, in fact many pennystockers make more money shorting penny stocks than buying penny stocks. Just because it’s not a popular tactic (It will become one, no doubt) doesn’t mean it’s a hard concept. Down here in the gutter it actually makes sense to short sell because many of these penny stocks are outright scams. Anytime any of these scam companies are hyped and manipulated upwards this is where short selling really comes in handy.

Last 5 posts by Justin Bostwick

• SEC Charges 8 - May 23rd, 2009
• 6 More Penny Stocks Picks: “Buy The Hype, Sell The News” - May 22nd, 2009
• Penny Stocks To Watch For Friday The 15th - May 15th, 2009
• Six Penny Stocks To Watch That Could Make You Money - May 12th, 2009
• The Framework Of An Afternoon Fade And Why It’s So Essential To Short Selling Penny Stocks - May 7th, 2009