Question about penny stocks - shorting - weird issue regarding margin

S

Saltynuts

So I tried to short a crummy penny stock with a listed price of .0015. I tried to short 700,000, but IB told me I did not have sufficient equity (margin) in my account. Now, 700,000 X .0015 is only $1,050. My currently available funds is in the hundreds of thousands of dollars. Plus, I shorted a non-penny stock after than for an amount in the $2,000s no problem.

So is there something weird where penny stocks, when I say I want to short 700,000 shares, somehow that really referring to some much bigger number of shares or something?

Thanks!
 
Yes, seriously lol.

So I called IB. They said that even though the stock is trading at .0015, do to a regulatory rule I have to have sufficient margin to cover the shares AS IF THEY WERE TRADING AT $2.50! What the hell kind of shit is that? Doesn't that effectively mean these low priced stocks its almost impossible to short? Or is there some way around this?

Thanks!
 
Someone can correct me if I'm wrong, but I believe IB requires $2.50 of equity for every share borrowed under $2.50. So if you want to short 700,000 shares, you would need $1.75 million in equity.

Are you really considering doing this? It has disaster written all over it.
 
LS1Z28 said:
Someone can correct me if I'm wrong, but I believe IB requires $2.50 of equity for every share borrowed under $2.50. So if you want to short 700,000 shares, you would need $1.75 million in equity.

Are you really considering doing this? It has disaster written all over it.
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Well, I was considering it, but I can't to it. Why on earth does it have disaster written all over it? I would literally only be putting $1,050 in it. The fact that I have to cover with so much margin is besides the point.
 
Saltynuts said:
Well, I was considering it, but I can't to it. Why on earth does it have disaster written all over it? I would literally only be putting $1,050 in it. The fact that I have to cover with so much margin is besides the point.
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Just imagine if you shorted 700K shares and the company had a massive catalyst overnight. You could be six figures in the hole before you were able to liquidate the position. The potential risk to reward on a trade like that is terrible.
 
I just don't understand silly things like this. My account is less than 50% invested, and I have hundreds of thousands of available cash it in. But I can't short $1,050 of stock. Good lord these regulations have jumped the shark.
 
LS1Z28 said:
Just imagine if you shorted 700K shares and the company had a massive catalyst overnight. You could be six figures in the hole before you were able to liquidate the position. The potential risk to reward on a trade like that is terrible.
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Dude, the 700,000 number is IRRELEVANT. They could do a reverse stock split tomorrow and make that number 7, it still wouldn't make it any riskier. What is relevant is that I only wanted to short $1,050 worth. :(:(:(
 
Saltynuts said:
Well, I was considering it, but I can't to it. Why on earth does it have disaster written all over it? I would literally only be putting $1,050 in it. The fact that I have to cover with so much margin is besides the point.
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One day you are a nervous Nellie pooping your pants because the market was trading off a single digit percentage from all time high levels, now you talk about shorting penny stocks.

Why disaster? Because you don't know what you are doing!! Shorting has UNLIMITED RISK. And that has nothing to do with required margin, liquidity, or availability.

Quick! Turn on the news.... AMZN is buying some penny stock for a 100 million. It's now up 11267% on the day! Damn!
j/k

Sit on your hands @Saltynuts... AT LEAST until you THINK you know what you are doing.
 
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