The Best Online Brokers for Penny Stock Trading
What Are Penny Stocks?
A penny stock is defined by the SEC as a low priced common stock: a stock trading below $5 a share. Penny stocks are generally traded outside the major stock exchanges (such as the Nasdaq or the NYSE) and are traded on what is called the over-the-counter-bulletin board (OTCBB) or through pink sheets. Both the OTCBB and pink sheets provide ways to trade stocks that do not meet the stringent listing requirements of the major exchanges. Of course, this also means that penny stocks are often far more volatile than your typical stock listed on the NYSE. Overall, because of the high risk associated with penny stocks, we do not recommend trading them unless you are a very sophisticated investor and have a clear strategy.
Watch Out for Extra Fees When Picking a Broker
1) Trade commissions – Not only do stock trade commissions have to be low, but you also want to select a broker that doesn’t charge an additional fee for trading penny stocks. Many brokers will charge you a fee for trading stocks that are below a certain price. TradeKing, for instance, tacks on an extra $.01 per share for shares priced below $2.00 in addition to their standard $4.95 trade commission. If you trade 500 shares of a stock, this will add an additional $5.00 to your trade. It is also important to keep in mind that different brokers have different definitions of what price constitutes a penny stock.
2) No large order surcharges – A good penny stock broker will offer unlimited shares in a trade without additional fees. Some brokers attempt to limit penny stock purchases by adding a surcharge on stock trades that exceed a certain number of shares.
Best Overall Value
Combines low pricing with quality execution and research and data tools
tradeMonster provides a flat commission structure for trading penny stocks. Although tradeMonster specializes in options, equity traders will not be disappointed. The platform gets mixed reviews for intuitiveness, but more advanced traders appreciate its customizability. Its spectral analysis and risk management tools are customer favorites.
If the trading experience is tradeMonster’s strong point, its weak points is its customer service. Customers criticize the firm’s phone and e-mail support, citing misleading information and long wait times.
To compete with more research-oriented firms, tradeMonster recently introduced a two-level subscription program called TrendLens. Subscribers can access thorough technical indicators for stocks and more complete research. They’ll also be charged a reduced $3.90 per-trade commission. Investors will have to make quite a few trades to break even, however. A standard subscription is $149 per month and a premium subscription is $299.
If you are looking for the lowest possible commissions
Many of the other firms offering penny stock trading have similar commission structures/surcharges, usually around $ .005 per share on top of standard commissions. And in some cases, firms require you to use a broker-assist for a penny stock trade, so in that case, customers would be looking at a commission of more like $30 or $40.