3 Things To Consider When Choosing A Penny Stock Broker

There are three very important aspects to consider when choosing your penny stock broker. The first of these is price per trade, the second is timeliness of execution, and the third is information. In reality you should be able to find a broker that accommodates all three to a reasonable level.



Things that I watch out for (and avoid) are really low fees temporarily or zero minimum funding. The reason I don’t like low temp fees is because they often make it difficult to transfer your money out once you have it there so you’ll just stick with them. The reason I dislike zero minimum funding is because if you don’t have a good minimum funding than you shouldn’t be investing in penny stocks anyway, much less trading them.

Commissions

Many traditional stock brokers, like Scottrade, require a large order or low price stock fee. These fees average around ½% of the total on top of the flat rate commission. This can start to add up when totaled with the spread fee for trading low volume penny stocks. If you’re buying $100 of a penny stock with a $7 commission, $0.50 for the low price stock fee, and 10% on the spread you have a 17.5% hurdle to overcome before you even make a penny. Yes the pun was intended.

Execution

Most penny stock traders are either looking for momentum or they are looking to scalp. Either way you need the price of your trade to be as absolutely near your request price as possible. If a broker has slow execution you may find yourself chasing a stock. You’ll put in a bid which would have been accepted when you placed the order, but the delay was so long (which is not a long delay at all, it’s just a very fast moving endeavor) that the bid is out of acceptable range.

Once you get in the chasing mode your emotions can take over causing you to bid higher than your stock trading plan would of allowed because you want to “win” the stock. Sort of the eBay mentality where people bid up because they want to beat the other guy not because they want the auction at that price. Don’t do this; place a bid and if it’s not accepted move on.

The better execution your broker has the fewer problems you’ll have with this. If you are using a web based or online broker, as most of us are these days, web portal uptime is very important. If you need to check your investments or if you are trying to make a critical sell and the site goes down you are in trouble. By the time you find the number for your local office, get hold of your broker, and get an order in, you’ve probably already lost big money.

Information

The last part you want to look at is the quality of information the broker provides. Don’t even worry about the information from the “financial advisors” because their primary job is to sell things. Once they know you’re into penny stocks they will be trying to give you tips all the time. Don’t bother with their rubbish.

What you care about is the quality of their historical information, charting software, and Level II Quotes. You need quality historical information because this is how you run back testing to determine how you wish to trade. The charting software allows you two quickly see the entry and exit points for stocks you are interested in trading. The good charting software will maintain your technical analysis requirements as the chart is updated real time. The Level II quotes show you the size of the buy and sell transactions between the market makers. This gives you a good feeling of how liquid a stock is at that moment in time, not just on average from day to day.

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