I read somewhere, something to the effect that long investors could loose part or all of their original investment in any stock investment, but the losses to a short trader could be infinite. Say for instance, 10000 shares sold short at .50, good news hits and stock immediately climbs to 1.25, thats a net loss of 7500 dollars which is more then the original order of 5000 dollars. That's really living on the edge
I forget who it was but in one of the books I read that this is a misconcept because the room to the upside is only theoretically impossible In reality a stock can only move up so far before someone starts sellings. Obviously this wasn't for a penny stock but regular stocks like s&P500.