Yes, one can short pennies...but for the average trader, the cost is prohibitive. And, yes, it's possible to lose way more than 100% of your investment if a short sell goes bad--especially for the individual trader. It is difficult but can be done. http://www.nytimes.com/1995/03/23/business/market-place-short-selling-penny-stocks-can-prove-a-far-from-simple-move.html?pagewanted=1?pagewanted=1 http://www.timothysykes.com/2008/04/how-to-short-penny-stocks-playing-it-safe-by-covering-short-positions-early/ http://theotcinvestor.com/how-to-short-sell-penny-stocks-121/ http://en.allexperts.com/q/Day-Trading-2242/Shorting-penny-stocks.htm http://www.pennystocks.org/short-selling-penny-stock.php