How to Short a Penny Stock

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The smartest way to short a penny stock is through a company that is based outside of the United States, although it's still a risky move. Find out why most American companies won't allow customers to short penny stocks with help from a portfolio manager in this free video on penny stocks and investments.

Part of the Video Series: Penny Stocks
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Video Transcript

Do you have an iron stomach when it comes to investing? Hi, this is Roger Groh at Groh Asset Management and you may want to short penny stocks. Remember, penny stocks are companies that sell for less than a buck and if you're shorting something, you're betting that the price is even going to decline more. Is that a good strategy? It's pretty risky and most brokerage firms will not let you short stocks that sell for under a minimum price. I've flown Charles Schwab prior to this and Schwab told me that anything less than 3 dollars they would not allow anybody to short. Different firms have different levels. Eventually though you'll be able to find a firm, a smaller firm, that may let you short. But there may be a smarter way to go about this. There are plenty of companies that are based outside the United States who's stock trades appear in the US in ADR form or in some sort of unit form meaning the stock in their home country can sell for 50 cents, but if it's 10 shares to 1 trading here in the US, here it would sell for 5 bucks. What does that mean? Well you're above the dollar limit that the brokerage firm would set as a floor, probably get some advantages of increased volume because of that. But nonetheless you'd be shorting in the end a penny company, just doesn't happen to be based here. So that would be the way I would go about it. In any case, you have to be very careful buying back stock in a penny stock situation is very difficult and it's not for the fainthearted. Hope that helps, I'm Roger Groh with Groh Asset Management. Thank you very much for spending time with me.

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