If you want to invest in penny stocks, you need to first choose a penny stock broker.
What are penny stocks? Penny stocks are any stocks that sell for less than $1, though some define penny stocks as stocks that sell for less than $5. Either way, the appeal behind penny stocks is that you can purchase lots of them with a small investment amount so you can potentially maximize profit.
A penny stock broker, meanwhile, is simply a platform that you use to buy and sell penny stocks. There are many brokers out there, and not all of them are exactly the best option to use if you are a beginner.
Here are the top qualities you need to look for in a penny stock broker:
Penny stock brokers make most of their money from collecting fees for each transaction. The fees vary from broker to broker and can either be a flat rate regardless of the size of the transaction or a percentage of the transaction total.
Obviously the lower the fees you have to pay, the better so you can collect more profit. If you purchase a penny stock at $0.3 a share but have to pay $0.06 a share, for example, can really make a sizable dent in your profit margins.
Always find out what the fees of a broker are before choosing them, and try to go with one with a low fee and preferable one that doesn’t charge for each share traded.
Online Trading Capabilities.
Online trading is simply the most convenient way to trade penny stocks these days. Steer clear of any broker that requires you to trade penny stocks via a phone order. Instead, you should be able to trade using their online platform. Additionally, look for brokers that have an app so you can trade while you’re on the go and not at home.
Lower Volume Restrictions.
Some penny stock brokers will put a limit on the number of shares you can trade in a day, or otherwise will charge higher fees for larger orders.
In general, the best brokers will allow you to make trades with an unlimited amount of trades without restrictions. While putting limits on the number of trades or the size of your trades may seem like a wise idea for beginners, the truth is that any broker that slows down your trades or that otherwise charges you extra for a second or larger order will only hinder your ability to learn how to trade effectively.
Last but not least, skip any penny stock broker with a surcharge. A broker with a flat commission will be better. Many brokers will add a surcharge to trades with a large number of shares, but you will want to avoid them because it eats too much into your profit margin.
Choosing A Penny Stock Broker.
Choosing a penny stock broker is not something you want to do on a whim. Be very careful about the specific one that you choose, and look for the qualities that we have just discussed.