Can non-US Residents Trade US Penny Stocks?

The concept of penny stocks is primarily American. Whenever penny stocks are discussed, the definition is based on what the American Security Exchange Commission (SEC) has established.

The regulator has classified penny stocks as those that trade under a dollar and in some circumstances, those that trade below $5. That categorization makes their trading not to take place on the stock exchanges but over the counter (OTC).

For some peculiar reasons, penny stocks can offer better opportunities to stock traders. For example, there is nothing unusual for a penny stock to move from, say, $0.25 to $0.50 within a day. That is a 100% increase, though. If a day trader had bought the penny stocks worth about $1000, that means they can easily make an extra $1000 within a short time.

Now, compare that to mega stocks. It is quite unusual for, say, the Amazon (AMZN) stocks to move through a range of 25% in a day.

The secret, though, to succeeding with penny stocks includes establishing a list of the top penny stocks and knowing how to maintain it.

stock exchange chart. Image by Gerd Altmann from Pixabay
Stock exchange chart. Image by Gerd Altmann from Pixabay

Why Is the American Penny Stock Market Attractive?

Many reasons make the US penny stock market attractive to even those who are not citizens or reside in the country. Among those is that the US is one of the economies that incentivize entrepreneurship the most. And one just has to look at the list of the biggest global companies. Google, Amazon, Facebook, and many others, all founded in the US.

For the same reason, there are more small publicly traded companies in the US than in any other country around the world. Indeed, there are over 8000 publicly traded companies in the US. About 6000 of those have their stocks priced under $5.

Indeed, the number of penny stock companies in the US is several times higher than the total number of traded companies in most countries. For example, the total number of publicly-traded companies in the UK is about 2600. The number is 470 companies in Germany and it is 3700 companies in Japan.

Even more, the US financial regulatory environment makes it easier for companies to carry out initial public offerings (IPOs). At the same time, it facilitates and incentivizes investors to own, grow, and safeguard their assets better than in most other countries. These legal benefits apply even to non-Americans.

Access to information is key to succeeding in penny stock trading. Indeed it is a lot easier to access information about American industries and companies. This also applies to the penny stock category.

In fact, it is easier to research a US penny stock company and make very informed decisions than it is to research a mega stock company in, for example, China or Russia. Indeed, access to information is one of the significant incentives that drive non-American residents to trade American penny stocks.

Can a Non-American Resident Trade Penny Stocks?

Like with the other stocks and markets, there is no particular American law or regulation that bars foreigners, particularly those that are not residents of the country, from investing in US companies. Indeed, millions of individuals and investment firms worldwide buy and sell stocks in the US daily, and part of that activity is in the penny stock market.

However, there are a few things that one has to do to trade US penny stocks. Of most importance, they need to identify a reliable international stockbroker to be their interface with the US penny stock market.

The internet has made it easy to find and indeed work with such stockbrokers. However, one needs to do thorough research about a stockbroker, including finding out what other investors have to say about them.

Once a trader has found the one they think is the right fit, they can apply and create an account online. They can also proceed to deposit capital. Using online interfaces, one is usually in a position to issue trade instructions in real-time.

For a non-resident, however, the application process can be a little rigorous. In particular, that is because of The Patriot Act of 2001, which bars individuals and entities involved in crime and, in particular, terrorism from participating in the US financial market.

For these reasons, a stockbroker will usually require an applicant to provide verifiable identification. If they cannot satisfactorily verify whether the investor is indeed who they claim to be, they will decline the application.

Most applications to trade in the US penny stocks are not declined. One can be confident that they can trade American penny stocks if they are not involved in any criminal activity and can easily prove their identity.

Conclusion

American penny stocks markets offer opportunities that one can not find in other stock and asset markets around the world. Fortunately, it is a market that is open for anyone from around the world to join and participate in.

Shruti Gupta

Shruti Gupta is a writer and digital marketing consultant at Rankmebest.com. She has a passion for technology, startups and other business topics. She lives and breathes digital marketing, and has contributed to a number of famous websites. Her aim is to spread her thought-provoking ideas to all generations.