Short Selling?
Well no, the above poster is right you are shorting at the ask, and buying back at the bid, you lose. Usually short selling is done in margin accounts, which is essentially a loan. Second in your scenario you explained the bid and the ask don't necessarily reflect the price you will actually pay and you could very likely lose money. Second the transaction fee associated on that transaction would likely result in a net loss, let's say the bid ask spread is a $1.50, if you complete the transaction as stated above you will pay at minimum (if you use a site like e-trade) $8 to short it and $8 to buy it back so it cost you $16 to make $1.50 profit, you've lost $14.50. Lastly NASD day trading regulations make these types of transactions pretty much impossible.
Which broker allows short selling for under $5 stock?
The internet is flooded with lies about penny stocks. It is pretty much impossible to short them. Read the SEC warning link below. Yes, you can legally sell short stocks selling less than $5, however since $5 stocks are not marginable, it is very difficult borrowing such stocks and firms do not want to carry open fails on junk stocks which eventually are charged against their net capital. Also since stocks selling less than $5 are not marginable they must be either segregated or held in safekeeping and can not be used for securities lending. Although there are no laws that mandate a person has a margin account if a customer wants to sell short, most firms will require short sellers to have have an approved margin account. The NYSE does recommend that if a customer has a short account, they must have a margin account. All firms require that permission must be given to sell short, and since borrowing cheap stocks is very difficult, most firms will not approve shorting stocks selling under $5 because it increases their workload and paperwork to such an extent (est. cost of about $75/trade) that it becomes cost prohibitive for them to handle such trades at the low online commissions charged.
When should an investor sell short?
When should an investor sell short? - An investor sells short when he "thinks" a stock will fall. How can an investor sell something that they do not own? -First, you must have a "margin account" with your broker to take part in any kind of short selling, or options trading, or derivates. This account allows you to "borrow" money from your broker to make a sale. There are limitations to being able to open a margin account though, such as having a specified amount of cash. Check with your broker. What is the source of profit in a short position? -What happens when you short sell is, you borrow money from your broker to buy a stock which are then *immediately* sold in the market. Then you can buy those shares back once there is a lower price, and the shares are *immediately* sold back to your broker.. which is for a lower price. You get to keep the difference from when they were sold to the market to when your broker must buy them back (aka closing the sale). For example, short sale 100 shares for $1000 today, close 100 shares for $800 tomorrow. You get to keep $200. Of course, this is the ideal situation. If the stock were to go up when you went short and closed the deal.. you will have to pay the broker. It can be a BIG mess. Options and derivatives carry risk, and that is why most of the time your broker will tell you that you must have a lot more cash in your account to do any kind of "margin" trading. Because they know if you screw up, at least you will have money in there to pay them. Just FYI, options and derivatives are very dangerous. I do not recommend it. Options and derivatives are often used as short term trading mechanisms to make a quick buck by day traders and the like. It also means losing bucks. Trading the fluctuations of the stock market is not a smart thing to do.
How does short selling stocks work?
I'm thinking about short selling a dying stock before it completely crashes, but I still don't completely understand what it is I'd be doing. Can someone explain the process for me?