posted
I never tried to short sell a stock, how is it work? from my understanding is this, if you think a stock price is going to fall you sellshort this stock and then later buyback at a lower price to make the money.
In the penny world, it seems that pretty much all the stocks are decreasing in their price(most of companies keep diluting their shares) so is better to make money with sellshort.
I looked at my portfolio, most of my stocks are decreasing in price, so i would make money now if i sellshort at the first place right?
what if the company keep decreasing their price and then Revese Split?
Machiavelli
posted
You can't sell short penny stocks.. only stocks that are $5 and over per share... short selling is where you "borrow" the stock from your broker and sell it immediately in the market in anticipation that it will go down in price so you can buy it back cheaply and give it "back" to yoru broker... the difference in price is your profit.. example:
You "borrow" 500 shares of stock ABC from your broker and sell it in the market immediately.. you get $5,000.. the price you sold it at was $10 a share... the price starts going down and down... it hits $6 per share... you buy it back to cover your position because you think it will now go up.. you buy it back for $1,000 and you give the stock "back" to your broker... the $4,000 in difference is your profit... $5,000(sold short at and received) - $1,000 (bought it back cheaper at) = $4,000 (difference from what you sold it at and what you bought it back at is your profit) ...
The downside to selling short is if the price goes up instead of down when you first sell short... instead of it going down in price from $10 per share it goes up to let's say $15 per share.. you now have to cover the position fast because now you have to take $5,000 out of your pocket to buy it back more expensive.. so you have a $5,000 loss... hope this clarifies and explains everything... also there is a "uptick" rule before you can short a stock.. i'll let someone else explain that.. but anyways in shortselling you tend to make a profit 3 times faster then if you go LONG assuming the stock does go down and not up when you shortsell...
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