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Tuesday, June 10, 2014 4:11:42 PM
Brokers require investors to put up collateral to guarantee against potential losses in the form of margin requirements. Often times, brokers will require OTC investors to have $2.50 of margin per share to short a stock under $2.50, which can make shorting penny stocks very costly, especially when you get a margin call.
For example, if an investor shorted 10,000 shares of OWOO stock at say $0.05, you have to have $25,000 (10,000 shares x $2.50) in your account. All along, the maximum profit for this position would only be $500 if the stock went all the way to (near) zero before covering. For this reason, along with finding a broker willing to lend you sufficient shares to short, the prospects of shorting a stock at this price level are extremely unlikely.
Shorting penny stocks will normally not occur until the price is $1.00+.
The other scenario would be brokers creating a short through a failure to deliver - these are required to be shown here if it were the case with OWOO: http://www.otcmarkets.com/market-activity/reg-sho-otc
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