If I short sell stocks of a company but do not close my position by buying them back, what will happen? I realize it is a bad thing, but what exactly? I will need to pay a penalty?
You would generally have to pay interest for everyday you hold the position overnight.
If you never close the position and the stock price goes to zero, you will be closed out and credited with your profit.
If you never close the position and the stock price keeps going up and up, your potential loss is an unlimited amount of money.
Of course your broker may close you out early for a number of reasons, particularly if your loss goes above the amount of capital you have in your trading account.