Your Broker

One of the key aspects to investing wisely with penny stocks is to know which, if any, penny stocks are the right ones for you.  To do that, you need a solid broker, someone that you can rely on and know that they will be providing you with accurate information, timely information and will handle your money as if it is their own.

That’s not such a tall order now is it?

It is and it can be difficult to find a broker that can provide you with the best outright agreement.  Therefore, we will break down some of the key things to think about and work with when it comes to finding the right broker for penny stock investing.

Who’s He Working For?

If you have traded stocks in the past, then you know that a stockbroker can play two different roles in the game.

1. He works as your agent.  In this case, he is providing you with service and your goals are his goals.  He works as your agent to handle the buying as the selling of your stocks.  Usually, people are hands off in this situation meaning that they will tell their broker what they would like them to do and the agent does just that.  In other cases, the broker will have more or less power to make decisions.  That’s not what is important here.  What is important is the fact that he is working on your behalf.

Of course, in this type of an agreement your broker is being paid from you.  If and when he makes something happen and you end up gaining some money, he gets a cut of it.  Or, you will pay him no matter what type of situation he is making for you.  Nevertheless, you basically pay your broker in this agreement.  He is paid a commission for working for you here.

2. He is working as the principal.  In this case, the table is turned even if you do not realize it.  Here, he is not working with you as a partner so to speak, but he is working at helping you to sell your shares, or buy shares, in stocks from him or through him.  In this case, he is not just your agent but can be the agent for the buyer/seller of the stock as well.

In this case, he is not receiving a commission from you.  Rather, he is getting his funds from the spread.  Here, he is buying as well as selling stocks at just the right time to make the best amount of money.  If you are working with a broker on these terms, his contract should say right on the front of it that you are working as a principal arrangement.  Here, remember that your broker is now working for his benefit more so than yours.

As you can probably see, the stock broker that is working for you is one that is looking out for your own good.  The one that is working for his own bottom line may not be as honest or provide as benefiting information to you.  That is not to say that he will cheat you or otherwise cause problems for you.  Rather, he is more likely to have other goals in mind rather than just your commission payment to him.

The Problem

The problem with this type of broker is quite obvious.  You will not know first hand where the stockbroker’s loyalty lies.  Therefore, will he sell you a stock that is not doing well?  Does he know a stock you own will be doing better in the future and therefore wants to sell it to you?  Of course we can not say for sure that a stockbroker will do this or even that he will not.  The bottom line is, though, if you are in the business of penny stock investing, you need to know who’s behind you.

Many penny stocks are traded in the way of principal stock brokers.  Although this does not necessarily have to be a bad thing, it is important to know that it could potentially be there.  There may be a conflict of interest in the way of the stock broker and you should know about it before hand.

Selecting a Broker Wisely

With penny stock investing, you can clearly see why it is important to have someone that you can trust to help you with funding your transactions.  The problem is, though, that not all stock brokers are willing or even capable of selling penny stocks. 

The problem, then, becomes double fold.  Not only do you need to find a stock broker that deals with penny stocks, but you need one that is also someone that you can trust.  This mix may seem hard to find but there are things that you can do to insure you get the best person for the job.

To help you to find the right stock broker for your needs, there are several things that you can do to make sure that it happens.

1. Get to know your broker.  Talk to him and make sure that he is on the same page as you.  If you do not feel that he is capable of making decisions for you, then don’t work with him.  If he does not seem trustworthy, don’t work with him.  As a new client, you should be the center of his attention.  If not, will you likely be later on down the line? 

2. Talk about experience with penny stocks.  He may not be able to give you specifics about which stocks he has invested in and done well with, but if he has done well, he is sure to share good stories about it.  But, you do not and should not feel that you are being pressured into any sale.  If he is after the sale, he’s not working on your side.

3. Determine his knowledge level.  If you are talking with a penny stock broker, he should be quite versatile in what he is telling you.  He should be able to answer any and all of your questions easily, without giving you the run around.  You should talk about your goals and see what he suggests in order to reach them.  A good stock broker is willing to plan your future with you and map out a plan to getting to those goals.

You can learn quite a bit about a stock broker simply by talking with him.  In fact, just getting to know what he can offer to you is a good indication of what the future has to bring.  Don’t settle for just any stock broker.  Instead, go for one you feel you can trust.