Penny Stocks are traded on the OTC market, so do your homework before venturing out on your own. First of all, when approaching a company, there will usually be two bid prices and two ask prices. These figures, known as the ‘inside’ and ‘outside’ ask and bid, offer you four different pricing options if you are willing to negotiate. The difference between these amounts is known as the ‘spread,’ and if, as is occasionally done, you use a penny stock broker (penny stocks are also often traded without a broker), be aware that sometimes they will attempt to make their money on the spread. This means that they will sell you the higher price and tell the company that your stocks were actually sold lower, and then claim the difference. Thus we see the ramifications of commission-less brokers in the penny stock market.
If you know enough to do without a broker, this is often better for you in the long run. In certain cases, for example if you are a beginner and are trying to get your feet wet with penny stocks, it can be better to have the guidance of a broker despite costs. These can include mark up pricing, where a broker has held penny stocks in his or her account to cushion them from the blows of the regular market’s ups and downs, and then offers them to you at a slightly higher price, but without much of the risk normally associated with penny stocks.
If you have made up your mind to invest a tiny quantity of funds in penny stocks, you will need to approach a trader to commence. Then as per SEC guidelines, you need to supply a request in writing to the dealer and after approval you may buy the stock from the broker. You really need to consult with the trader and should commit carefully but your broker will tell you the placing of the stock and brokerage firm.
Before speculating in penny stocks get hold of the Securities department of your state and obtain details about the agent.
Once you have made up your mind to deal with a broker, get all the information regarding the penny stocks, brokerage and other terms and conditions from the agent in writing. You ought to also keep the records of all the papers provided to you by your agent and ask them to provide you with the papers citing the recommendation for obtaining or trading of any penny stocks. Once you have done this, take an impartial opinion about such stocks and shares from another broker and decide carefully before making any investment. Your broker ought to also furnish you with a monthly account mentioning the stocks or shares you have in your personal account and their values.
Securities Investor Protection Corporation coverage: Brokerage firms dealing in penny stocks will generally have SIPC Coverage. Then if you find the brokerage is incapable to pay you your dues owing to bankruptcy, the SIPC guarantees that the client possessed stocks held by the brokerage firms are paid. SIPC insures the complete client held certificates held by the brokerage, nonetheless in case of a hoax, the insurance underwriter is not responsible to pay the amount of money.