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Market Basics
Micro-Cap Brokers

Who Can Sell Micro-Cap Stocks To Me?
A broker-dealer or a market maker can help the public trade micro-cap stocks. E-trade or Scottrade are examples of reputable online brokerages that can and do help investors buy and sell micro-cap stocks.

What Are Market Makers?
In the context of micro-cap stock investments, market makers are brokerage firms that remain prepared to buy and sell a specific stock on a frequent and continuous basis at a bid or ask price.

Market makers are in constant competition with one another for orders to buy or sell at prices publicly quoted. Market makers must, on the whole, be prepared to buy and sell at least one hundred shares of a stock they develop a market in.

Resultantly, a substantial order requested by an investor could possibly have to be filled by numerous market makers at potentially different prices. If, for example, a broker seeks to buy a stock but there are no offers to sell it, the marker maker will fill the order himself by selling shares from his own account. This works in reverse too where, if a broker desires to sell but there is no buyer; the market maker then buys the shares.

Market makers have an important role to play in providing liquidity in the Over-the-counter (OTC) market, where micro-cap stocks tend to trade.

Who Are The Market Makers?
In the Over-The-Counter (OTC) market, a Market Maker is the brokerage firm or trader responsible for maintaining a functioning market in an individual stock by standing ready to buy or sell shares.

What Questions Should I Ask The Broker?

  • Is the brokerage 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?
  • 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?
  • Where do you send my order to be executed? Can we get a better price if we send it to another market?

Additional Notes:

  • 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.
  • Your broker must reveal to you the bid and offer price quotes for the micro-cap 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 micro-cap stock owned by you.
  • Your broker must send you a written statement for you to sign that accurately describe your financial situation, your investment experience and your investment goals. This document should also contain a statement of why your firm decided that micro-cap stocks are a suitable investment for you.

 

 

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