Penny Stocks Brokers

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A broker-dealer or a market maker such as Scottrade or Etrade can sell Penny Stocks to the public. Market makers have an important role to play in providing liquidity in the Over-The-Counter (OTC) market, where Penny Stocks tend to trade. Before purchasing Penny Stocks from a broker, a potential investor should ask the broker:
Is the brokerage is registered with a state securities regulator? Have they ever been investigated or disciplined by a state regulator, the Securities Exchange Commission (SEC) or any other organization, such as NASD or one of the stock exchanges?
By contacting the state securities regulator you will be in a position to access information detailing whether or not the stock broker and his or her firm are registered, if they are in a possession of a business license, and if the broker or firm has been the subject of complaint or disciplinary action.
How long has the brokerage firm been in business? How many arbitration awards have been filed against the firm?
Have you personally been involved in any arbitration cases? What happened?
Please describe your personal investment philosophy. Describe your typical client. Please let me have the names and telephone numbers of some of your long-term clients. How do you get paid? By commission? Amount of assets they manage? Another method?
Do I have any choices on how to pay you? Should I pay you by the transaction? Or a flat fee regardless of the number of transactions? Do you make more money if I buy this stock rather than another? If you weren't making extra money, would your recommendation be the same?
Are you participating in a sales contest? Is this purchase really in my best interest, or are you trying to win a prize?
How much will I receive if I sell the stock again today? Where do you send my order to be executed? Can we get a better price if we send it to another market?
Under federal law, your broker is required to disclose certain information to you before you make a Penny Stock investment, including:
Your broker must reveal to you the bid and offer price quotes for the Penny Stock, as well as the number of share to which the quoted prices apply.
You must be informed of the brokerage firm's compensation for facilitating the trade and the compensation amount allocated to the firm's salesperson.
You must be given monthly account statements giving an estimate of the value of each penny stock owned by you.
Your broker must send you a written statement for you to sign that accurately describes your financial situation, your investment experience and your investment goals. This document should also contain a statement of why your firm decided that Penny Stocks are a suitable investment for you.
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