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Monday, December 22, 2014 1:11:55 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.
For example, if an investor shorted 2,000 shares of a stock at $0.50, you have to have $5,000 in your account. All along, the maximum profit for this position would only be $1,000, if the stock went to zero. Some may think the risk/reward at this level might be worth it.
However, in our case, with OWOO trading at +/- $0.0015/share, lets say if you wanted to short 1,000,000 shares (assuming you could find a broker to find the shares), you would have to have $2.5 million dollars in your account to cover the margin requirements, all just for the opportunity to make a maximum profit of $1,500. You begin to see why no one in their right mind would be shorting this stock at this price level.
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