If you intend to engage in trading penny stocks you need to know where to buy penny stocks, more specifically, which online penny stock brokers provide the most appropriate service for your needs and your budget. A penny stock broker is an invaluable resource when you embark on this endeavor, but it is important to know how to choose a good broker.
This is my guide to top online penny stock brokers. These top online brokers were largely determined by the Forbes Best of the Web awards and Barron’s survey of online brokers with some of my own experience influencing my recommendations. I’ve recently updated this list with some reviews from Consumer Research and MSN Money. I’ve compiled recent numbers for expenses, but you should always check the provided websites for the latest in prices. Click any of the penny stock brokers here to skip down to their section.
- Charles Schwab
- Trading Direct
- TD Ameritrade
- MB Trading
- Interactive Brokers
While FirstTrade may be lesser known compared to some penny stock brokers, you should still consider them for they offer $6.95 commissions. FirstTrade also doesn’t charge annual or quarterly fees and do not require a minimum balance to open an account. However, keep in mind that FirstTrade is a pure discount brokerage and you should not utilize them if you are a novice. A discount stock broker provides minimum support and penny stock research capability.
You should also note that FirstTrade increases their commissions on many penny stocks. For example, if you trade stocks which sell for $2.00 or under, they require you to pay an additional fee of half a cent per share. So when you trade, say 1000 shares of a one dollar penny stock, FirstTrade will charge you the base $6.95 plus an additional $5.00, making your final commission expense $11.95 rather than just 6.95.
With Vanguard you have more of a full service broker akin to major services like Charles Schwab or Fidelity. Thus it is no surprise that you will be charged more for their robust set of features and services than you would be charged at the discount brokers like E*TRADE.
Vanguard charges $25 to execute any limit or market order. It also assesses a $30.00 service per year fee for each account. You will also need a minimum balance of $3000 to open and maintain an account.
Since I assume many of you may be only looking for penny stock brokers, you should note how Vanguard treats penny stock trades: You pay a flat $20.00 commission per trade with two percent of the total principal added to the total.
Charles Schwab rides the fence along being a full service broker and a discount stock broker. It provides some robust full service features, but it also was a pioneer in the online discount trading market, establishing itself as one of the top online brokers among full service brokerages.
Charles Schwab charges $19.95 for limit and market orders and $0.015 more for each share over beyond 1000. Additionally, Charles Schwab will charge you a service fee of $45 per quarter.
To open an account with Charles Schwab, you need a minimum balance of $2500.
With Charles Schwab it will cost $19.95 to trade any penny stock or small-cap stock. When you buy more than 5000 shares, however, you must pay $0.003 for each additional share. You do, however, receive more tools for penny stock research and for helping you obtain quality penny stock tips.
Fidelity charges $19.95 for both market and limit orders – including all penny stocks. You need an opening balance of $2,500 to open an online account. But once you do, there is no quarterly or annual fee.
Fidelity offers a lot more research capabilities – and is marketed for the more serious investor (with a higher net worth) who likes the bells-and-whistles of a full-service broker.
Scottrade is one of the cheapest online brokers listed here. They charge $7 for both market and limit orders. There are no quarterly or annual fees. So even if you are an inactive investor, you won’t be penalized for “not trading.” The only drawback for penny stock investors is this…
In addition to the $7 flat commission, they charge an additional fee of 0.5% of the total principal. So if you spend $500, you owe Scottrade an addition $2.50 added onto that $7 commission – making your total commission come to $9.50.
Like E*Trade, Scottrade is a bare-bones broker.
Trading Direct charges $9.95 for all market and limit orders up to 1 million shares – including OTCBB & Pinksheet penny stocks. There is no minimum opening balance required to start an account up. They do charge a $60 annual fee unless you make at least one transaction per year or meet one of several other requirements. See more details through the link below. Trading Direct does look a bit “bare bones” but it’s low prices are attractive.
Sharebuilder is a relatively new, and very unique online discount broker. Opening in 1999, ShareBuilder’s CEO Jeff Seely made it his goal to let everyone participate in a market dominated by large brokerages. The Sharebuilder philosophy is based on three concepts: Discipline, Diversification, and Dollar Cost Averaging.
After ShareBuilder merged with ING, the deal got even sweeter with $9.95 real-time trades. What makes their service unique, however, is the Automatic Investment Plan. You can schedule dollar amount trades for Tuesday of every week and pay a commission of $4 or less! This is a great feature for making longer term investments, allowing you to build your portfolio slowly and affordably.
With no minimum funding or inactivity fees, opening a ShareBuilder account is a good idea even if you already have an online broker. That way you can take advantage of the extremely low fees for your longer term investments.
TDAmeritrade is one of the best known discount online brokers. Formerly Ameritrade and TD Waterhouse, the companies have merged. Since this merge, things have only gotten better for traders. They now charge a flat $9.99 for all market and limit orders no matter the order size, or stock price – including OTCBB & Pinksheet penny stocks. There are also NO Inactivity or Maintenance Fees no matter what your balance and trading activity level are. Generally there is a $2000 minimum funding level to open an account. Promotional offers may lower this, however.
Zecco is an online broker that is defying all others by offering FREE… yes, you read it correctly, free stock trades. They are able to do this by making their profits via interest on your money, as well as using ads on their site. Other brokers do the same, but still charge fees for each trade.
Zecco offers up to 10 trades a month, completely free. After that you pay only $4.50 a trade. Even more, they now have NO minimum funding level, however, you will need a minimum of $2500 to qualify for free trades. For investors trading with small amounts of money, that don’t need much customer service, Zecco is certainly a broker to consider.
However, if you seek a broker who provides penny stock advice, look elsewhere.
E*Trade is a cheap broker that benefits active traders who don’t need much support from customer service. Many consider them a pioneer among top online brokers. E*TRADE charges $12.99 for both market and limit orders (lower for large and active accounts) – including penny stocks on the OTCBB/Pinksheets. You need at least $1,000 to open an account with E*TRADE. There is a $40 quarterly fee that is assessed mainly when an account is inactive
MB Trading is another low-cost broker to keep an eye on. If you buy or sell 500 shares or less, it will cost you a penny per share. So if you trade 500 shares, your commission will be $5. If you trade more than 500 shares at one time, you are charged a half a cent for every share above 500. So if you buy 1,000 shares, your commission will be $7.50.
For penny and OTCBB stocks, MB Trading charges $8.95 per transaction – for unlimited shares.
There is a $2,000 minimum account balance with MB Trading. And if you trade on margin or day trade, the minimum requirements go up to as much as $25,000.
As long as you maintain your account, there is no monthly or inactivity fee to worry about.
ChoiceTrade features a relatively simple commission structure: 5 bucks for all services! They charge $5.00 for each buy and sell order (whether a market or limit order). For those of us engaged in penny stock trading, it is only $5.00 for Pink Sheet and OTCBB stocks.
There is no minimum required balance to open a ChoiceTrade account, except if you desire to trade on margin or start a day trading account.
For traders who aren’t active on a daily basis, ChoiceTrade could provide the cheap stock service they require, with no inactivity or quarterly fee if you aren’t trading tens of thousands of shares each month.
Another very basic discount broker with low commissions is LowTrades. They offer very limited services for charting and researching, but they charge only $4.95 per trade. Outside of margin or day trading accounts, there is no minimum balance required.
However, they do charge inactivity fees for each half of the year. If you choose LowTrades, just make sure you execute at least one trade per six month period to avoid those inactivity fees.
optionsXpress has been getting a lot of positive attention lately and is one of the more trendy online stock brokers. They charge $14.95 for limit or market orders of 1000 shares or less and if you trade enough, their fee for each order drops to $9.95 for 1000 shares. You’ll find no minimum balance to open an account with optionsXpress, unless you plan to trade on margin. Margin accounts require a deposit of $2000.
To buy and sell penny stocks or Over-the-Counter (OTC) shares, the fee structure is the same. You pay $14.95 for the first 1000 shares. The maximum you will be charged is 4 percent of the entire trade (this is for very large orders).
Interactive Brokers charge $1.00 to trade 100 or fewer shares. When you trade more than 100 shares, the commission is $0.005 per share. So when you trade 1000 shares, it costs you $5.00.
While there is a minimum account balance of $2,000 to open an account with Interactive Brokers, the SEC (Securities and Exchange Commission) requires a minimum $25,000 balance be maintained in any cash or margin account used for day trading. (This rule applies to all brokers.)
Be sure to utilize your account (either for trades or research), because they will charge you an additional $10 a month if you’re inactive for that month.
Despite these extra charges, many people still like Interactive Brokers for buying penny stocks and OTCBB stocks. They charge only 0.2 percent of the total price of a penny stock trade. So when you buy 2000 shares of a 50 cent stock, the commission would be $2.00.
Determining the best penny stock brokers isn’t cut and dry so be patient and methodical in your evaluation. To find the right online penny stock broker for your needs decide how much research and operational assistance you’ll need, determine how often you’ll be trading, then weigh your required profile of services against the costs of each broker to match your needs. For some, a discount stock broker will be all that is needed. But others may want to try a full service brokerage before trading on their own.
I hope this guide to penny stock brokers helps you come to a decision on how to proceed with penny stock trading. Thank you for reading Online Penny Stock Trading.