Short Selling Low Volume Penny Stocks

cardine

cardine

...
Jan 9, 2008
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I've been paper trading short selling low volume stocks for the past 6-7 months with a lot of success and I'm looking to start doing these short sells with real money.

The biggest problem I've run into is that most brokerages do not have shares available to short for most of these stocks (understandable since many of them are low volume penny stocks). InteractiveBrokers has available shares for appx. 40% of the stocks I would short, but they require you to be 21 to have a margin account (which you need to short sell).

Does anybody have any recommendations for good brokerages that have lots of shares of these random obscure (usually OTC) stocks available to short?

An example stock I'd be short selling has volume of 100,000-5,000,000 and the price of the stock is $0.05-$0.60/share.

And yes I'm aware of the risks, have been paper trading this for along time, will only be using money I can afford to lose, have read through and understand all the rules about short selling penny stocks, etc.
 


Check out SpeedTrader. Personally I've never used, but my friend does who trades a lot of OTC stocks does. Not sure how their borrow list is, but I know he uses them because he gets a better fill (gives you direct routes).

Sogotrade usually some good borrows, but they don't let you short stocks lower than $3. Their parent company is Genesis - depending how much you have it your account, might be able to open one with them

IB though is probably the best for OTC/Pink

You are going to have problems no matter what trying to borrow OTC/Pink sheet stocks. Your best bet is probably to open a bunch of accounts and some brokers let you reserve shares. Or just naked short it ;)
 
a lot of these stocks are thinly traded, making it harder to short. Shorting it on paper might be good but when you actually try to sell the stock in the open market. The market maker can dictate the price and basically fuck you up the ass.

I've seen this happen quite a few times.

you say ohh yea boy I'm going to short this stock for .25 10000 shares

the market maker says o really mother fucker we're going to buy 10000 shares in the open market for .50 cents, you get margin called forcing you to close your position. You lose your investment and then some.

when you try to make substantial money doing this, that is what happens. Market makers have a lot more experience than you.

Also what is happening on paper is not going to happen in real life.
 
If this was really possible you could potentially make a fortune off share scammers by getting on their "tip lists" (easier than you'd think) and then just short their recommendations once you see them spike. The problem is that the shares are usually being pretty much controlled by the scammers, so they would be hard to borrow.

Oh and don't forget when you short a low volume stock you are going to drive the sales price down yourself depending on the volume you sell into the market.

Shorting this way would work amazingly on paper, but in real life I am not so sure.
 
Wow...he didn't ask what you all thought of his strategy.

hurr durr this wont work hurr durr market maker hurrrrrrrrrrrr that wont happen durrrr


I don't really know of any good brokerages besides IB though. I would try signing up with IB and just say you are 21 and see what happens. I doubt they check into it. I wouldn't do that if it was an IRA account though.
 
Even buying low cost low volume stocks is problematic. Let alone selling them short. The pit specialists will not make trades out of their own money just so you can buy or sell at the "market price". They try to make a stock liquid but that is not at any cost and basically stocks this cheap are on the way out and off that board.

Plus you might have to worry about the uptick rule. Did they reinstate that anyone? I dont trade any stocks now, let alone short sale.

There might be a large house that lets you do this but it is majorly risky. Why dont you try to find some good $5 to $10 stocks before industrial buyers do and they jack the price up?
 
cardine said:
I've been paper trading short selling low volume stocks for the past 6-7 months with a lot of success and I'm looking to start doing these short sells with real money.

The biggest problem I've run into is that most brokerages do not have shares available to short for most of these stocks (understandable since many of them are low volume penny stocks). InteractiveBrokers has available shares for appx. 40% of the stocks I would short, but they require you to be 21 to have a margin account (which you need to short sell).

Does anybody have any recommendations for good brokerages that have lots of shares of these random obscure (usually OTC) stocks available to short?

An example stock I'd be short selling has volume of 100,000-5,000,000 and the price of the stock is $0.05-$0.60/share.

And yes I'm aware of the risks, have been paper trading this for along time, will only be using money I can afford to lose, have read through and understand all the rules about short selling penny stocks, etc.
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Why does this sound like someone has been reading too much Tim Sykes?
 
Soupyone said:
Why does this sound like someone has been reading too much Tim Sykes?
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I almost felt like including this in my OP because it was inevitable somebody would ask this... I've spent probably a total of 20 seconds on Timothy Sykes' website. And those 20 seconds I spent on his site were because he showed up on the SERPs when I was trying to find a good brokerage to short sell these types of stocks.

Drake said:
Plus you might have to worry about the uptick rule. Did they reinstate that anyone? I dont trade any stocks now, let alone short sale.
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There is no uptick rule currently.



All the money I'd be using for this would be money I could 100% afford to lose. All of the potential problems people have brought up in this thread are legitimate, but I've been looking into this for a while and I'm aware of all of them. I'm just looking for a good brokerage that can give me as much access possible to short selling these types of stocks.
 
Buying or short selling penny stocks is a crap. If you want to trade on something really rewarding without too much investment, them you should trade options. Have been doing this for a while after AM been slow for me lately. I'm only trading options on one company, $QQQQ which follow the NASDAQ-100. I have to say that is very predictable.
 
cardine said:
The biggest problem I've run into is that most brokerages do not have shares available to short for most of these stocks (understandable since many of them are low volume penny stocks).
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This is exactly why it doesn't work in "real trading"... you need lots of shares and buyers and sellers and there are none in these kind of markets.

Paper trading means NOTHING. You can't just dump an "x" amount of shares at whatever price you want like in paper trading. Once you start trading real money in real markets you'll start to understand what I'm talking about.
 
Any advice on some good volatile stocks that are going up and down in a short period of time that are suitable for quick profits. The economy is terrible so I'm not gambling on long-term profits.
 
If you want to trade volatile markets why not try forex, atleast currency is liquid enough to buy and sell. Leverage youself up to whatever you can stand.
 
a lot of these stocks are thinly traded, making it harder to short. Shorting it on paper might be good but when you actually try to sell the stock in the open market. The market maker can dictate the price and basically fuck you up the ass.
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^^^ This .. Personally I will not mess with shorting things under a $1 the risk is too high. Especially with GS, Banks, and so on manipulating the markets/individual stocks. Any Low volume stocks I would stay away from unless you are willing to take on mad risk.

Only thing I short is items with decent daily volume. So that if I get in the trade I can get out quick. Dried up stock volume will not work well to do that.
 
I usually swing trade ETFs and options, penny stocks are utter shit and are impossible to consistently make money off of unless you are pumping and dumping.
 
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