A trader needs a stockbroker to buy penny stocks, and you need to consider certain facts in order to give yourself the greatest advantage and protect your trading capital.
A broker acts as a middleman between a buyer and a seller, a trader and the market. You order a certain amount of company shares and it's up to the broker to fill your order. Investors can choose between a full service broker ‑- who assists, advises and helps with trades — or a discount broker who only processes orders. A discount broker lets you enter your own trades through an online interface and saves you money on commissions. We recommend a discount broker for penny stock trading, as the price difference between the full service and discount brokers may be very large.
Stock Broker Facts:
The majority of brokers don't want to deal with small accounts, as they make money from larger ones. To discourage penny stock trading, brokers may charge fees that affect the trade of low priced (less than a dollar) stocks and issue a large order surcharge for trades of more than 1,000 or 100,000 shares. With penny and sub-penny stocks, a $1,000 position easily carries more than 100,000 shares. The additional fees are usually noted with an asterisk in small print at the bottom of a contract. Note these fees with the brokers' examples listed below. Always make sure to read the fine print before you subscribe.
Factors for choosing a broker:
- Commission fees
- Minimum funding to open an account
- Features and benefits
- Inactivity fees
Some brokers may offer lower commissions, but make up for it with additional fees for trading low-priced stocks or by not including premium features at lower levels of trading activity. Evaluate all aspects carefully before subscribing.
TDAmeritrade and Zecco don't have large order surcharges, making them the only realistic options to a small penny stock investor. Zecco charges less than half the trade commission of TDAmeritrade, while TDAmeritrade offers impressive investor tools which Zecco doesn't. If you have enough money to meet the minimum funding level, you can use both and take advantage of TDAmeritrade's tools while executing your trades on Zecco.
Brokers Without Penny Stock Fees
| Broker | Commissions | Inactivity Fees | Min. Funding | Penny Stock Fees |
|---|---|---|---|---|
| ChoiceTrade | $5 Flat | None | $2,0001 | Large Order Charge – 500,000+ shares, 1% |
| Zecco | $4.50 or FREE2 | None | None3 | None |
| TDAmeritrade | $9.99 Flat | None | $2,000 | None |
Brokers With Penny Stock Fees
| Broker | Commissions | Inactivity Fees | Min. Funding | Penny Stock Fees |
|---|---|---|---|---|
| SogoTrade | $3+4 | None | $500 | Low Price Stock Fee – < $1, ½% 5 |
| LowTrades | $4.95+6 | $50 semi-annually | None7 | Large Order Charge – 100,000+ shares, 1%8 |
| ShareBuilder | $9.95+9 | None | None10 | Large Order Charge – 1,000+ shares, $0.02511; Low Price Stock Fee – < $1, .007 per share |
| Scottrade | $7+12 | None | $500 | Low Price Stock Fee – < $1, ½%+13 |
1 to receive $50 cash sign-up bonus and 4 months of free ChoiceStreamer Basic service
2 up to 10 free trades per month with a $25,000 minimum balance, or by making 25 trades a month. Regular trade commission only $4.50
3, 7, 10 while these brokers have a zero minimum funding level, we still recommend trading with at least $500 per stock
4, 5, 12, 13 for stocks under $1/share, total commission is ½% of trade principal, minimum $3
6, 8 for orders over 100,000 shares
9, 11 $4 or less for automatic investments, or $9.95 for real-time trades. Large order surcharge: In addition to the base commission, a large order surcharge of $0.025 for each additional share over 1,000 shares will be incurred. The total commission (base commission + surcharge) is subject to a maximum of 2.5% of the principal, but no less than the base commission. (This doesn't apply to automatic investments.)
