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.
2 things may happen.
Either your positions are closed by the broker and the loss or profit is credited to your account.
Else it is carried over to the next day and you pay interest on the stocks lent to you.
What happens will be decided by the agreement signed between you and your broker.