If you have some spare cash and looking for the ways to make it work, these best brokers for penny stocks may be just what the doctor ordered.
According to U.S. Securities & Exchange Commission penny stocks are stocks which are valued at less than $5 per share. These are mainly offered by small companies with less than $300 million in market capitalization, also called micro-cap stock. If a company has a market capitalization of less than $50 million than it is called a nano-cap stock. In general, both of these fall under the category of penny stocks.
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Penny stocks are traded infrequently and selling them may prove to be a hustle, because of highly irregular demand, unlike their big brothers traded on Wall Street. This also leads to another penny stock characteristics, their value is hard to determine due to infrequent trades, plus they are traded over the counter. All these had led to penny stocks being labeled a highly speculative trade. That is why Congress has issued strict restrictions on their trade, mandating that brokers who deal with penny stocks must fulfill several requirements before engaging in trade, like informing them of inherent risks of penny stocks trading, getting a written permission from a client on every trade, and full disclosure on company’s and broker’s fees. They also must send monthly account statements listing all penny stocks client owns and their market value.
That being said, there are people out there who profit quite nicely from penny stocks. Granted, you won’t find many of the Most Successful Investors in the World dabbling in penny stocks, but money is being made off of them, none the less. Of course, if you are new to the whole game, we don’t recommend investing heavily into them, at least not until you get the hang of it and gain some trust in your brokers.
Before you engage in penny stock trading, make sure you understand the risks, which aren’t insignificant. Regardless of what your brokers suggest, always do your own research. It may be hard because many penny stocks lack any history, so if you aren’t sure, you may want to walk away from the trade. There will be plenty of other opportunities, no need to rush into something that you aren’t completely sure of. Make sure you know what are you spending your money on because there are plenty examples of penny stock scams and fraud, especially pump and dump schemes. Consider how much is your broker charging you in commissions and fees before selecting one (we have included a brief overview for each of them in our list below).
We consulted several sources in order to create our list of best brokers for penny stocks, including Stockbrokers and NerdWallet. Once you selected a broker, take a look at our selection of Five Penny Stocks to Buy Now. Take a look at our recommendations and let us know in the comments if you had any experiences with these firms.
