For the most part, like the HOUSE in a casino, the odds are stacked in favor of the market makers.
It is, at first glance, a fairly simple thing. A company comes to the Penny market to raise capital to bring an idea to fruition. If it was a perfect world and not a corrupt and greedy one things might work. The products may roll out and shareholders become rich. But it is not a perfect world.
A huge percentage of such companies fail for various reasons.
If a market maker simply shorts all or most of the shares purchased and waits long enough, he never has to pay back the money (cover) or he can cover when the stock price has collapsed.
Example: stock is trading at 50 cents. Market maker sells short the shares at 50 cents apiece to an unsuspecting public. Thousands of these shares are sold short. It is a form of dilution. Market maker starts slowly taking the Asking price down. At a certain point, shakey investors start selling which further drives the price down. Market maker is able to cover by buying back actual shares from investors at a price of say 10 cents and has made 40 cents on every share. Or the company goes belly up and there is never any cover.
There are those that will tell you the above scenario never happens. So explain, if you will, why almost every day here the total volume traded and the short volume are nearly the same.
The only solution to this problem is for people to not get shakey and hold onto their shares. And for the company to pull its head out of where it is and start producing. These 2 things combined will cause a short squeeze eventually. BOTH things have to happen. This company has to start producing and making income to beat the market maker that is shorting it.
