Many good reasons exist to trade microcap stocks, sometimes referred to as penny stocks. Briefly, you can get started with only a small amount of money, make quick hits trading them and move on to some other stock, without keeping your money tied up long term. If you have ever thought about getting in to the stock market, they are a good place to start.

microcap stock investing

After you have learned enough about microcap stocks to feel comfortable risking some money in the market, one of the most important choices you will make is which broker to use. There are many things to consider when choosing a broker for your trading—support structure, stability, OTC-stock friendliness, and fees being most important. You want a broker that is on solid financial footing themselves and that can help you decide which stocks to buy or sell. Finally, you want a brokerage firm that trades in the over the counter (OTC) markets daily, and will not charge so much in account and transaction fees that it cancels out all your gains.

Here are some things you will want to ask any broker you are considering before you send them any money:

1. Are you a registered broker? They should be able to provide proof that they have registered with the securities regulation bureau in the state or states where they operate.

2. How long have you been in business? Obviously, the more stable the company is, the better.

3. Has the company had any arbitration cases filed against them? Are those cases settled, and what was the result?

4. Is your brokerage OTC friendly? Some brokerages handle these trades, but not efficiently, and really do not want to be bothered. You will want to stay away from those brokers.

5. Are there different choices for fees with your brokerage? For instance, can I pay you a flat monthly fee? You will likely be trading more frequently than people who trade large caps, so you want reasonable fees.

6. Has the firm ever been investigated by any of the stock exchanges, the SEC, or the state? Why? Finding out if a firm is ethical is of prime importance.

7. Does your agency pay brokers by commission? They might not always have your best interests at heart when recommending stocks, but rather their own paycheck.

8. What are your typical clients like? Brokers who deal with millionaires on a daily basis are not going to give your $1000 account as much attention, now are they?

9. What is your personal philosophy about microcap stocks? If they tell you that they do not buy them, find another broker. You want someone whose trading philosophy is similar to yours.

10. Can I have the names and numbers of a few long-term clients?

You will want to deal with a brokerage firm that patiently answers these questions. After all, if they are “too busy” to try to earn your business, what kind of service can you expect down the road? Even after you have their answers, perform your own due diligence online. Look them on the state’s securities website, or call to confirm that they are registered and do not have any sanctions pending. In addition, Google the firm’s name and the brokerage name for any news or information about them, and find and read many different reviews of the company.

This is a guest post by Denise Gabbard, who writes for Tomorrow Finance about topics like investing, money-saving ideas, and home loans

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