Short selling means selling borrowed shares with the goal of buying back lower. Learn mechanics, borrow costs, and why shorting penny stocks is risky.
To short a stock you borrow shares from your broker, sell them at the current price, and hope to buy them back later at a lower price — pocketing the difference. The risk is asymmetric: a long can only lose 100%, but a short has theoretically unlimited loss potential because price can rise indefinitely.
In penny stocks, shorting is doubly risky because borrow availability is limited (many are no-borrow), borrow fees can be extreme (20-100%+ annualized on hard-to-borrow names), and squeezes can be violent. The lower the float and higher the short interest, the more violent the upside risk if momentum shifts.