Nowadays brokers for penny stocks are becoming less expensive, making it more affordable for retail traders to invest savings. Finding a suitable trading platform is a frustrating task and will depend mainly on: what kind of stocks you trade (whether that be OTC or pink sheets), how much capital you have and how often you trade. Every week I get dozens of emails asking about what brokerage to use but it’s a difficult question to answer because of the multiple factors involved.
3 Main Things to Watch out for
- Surcharges – Depending on the broker, most will add surcharge to shares under a dollar. TradeKing charge an extra one cent per share below $2, so if you buy 10,000 shares it’ll cost you an extra $100. If you’re not careful these small charges can add up and will cut into your potential profits. Your brokerage should charge a flat commission rate or offer great discounts on large orders. E.g. TD Ameritrade, eTrade and Charles Schwab all offer flat fee’s or large discounts with no sneaky hidden fee’s.
- Trading Restrictions – You should be able to trades shares using an online platform and be cautious of any firms forcing you to place trades over the phone. Some companies impose restrictions especially when it comes to issues such as short selling penny stocks.
- Volume Restrictions – Ideally you will be allowed to trade an unlimited amount of shares.
Each broker will have different account minimums, commissions + fee’s and trading restrictions. Other things to consider include: quality of customer service, trading platforms / software, executions and market maker routes. The biggest obstacle is not having enough starting capital and firms hate dealing with poor people. It’s also harder to find a broker that is penny stock friendly if you live outside the United States, in a country like Australia or the UK. Penny shares have received a bad rap over the years and with good reason. 90% of these companies represent terrible investments and are just not something you would put in your 401k. Many of them are just shell companies put together for the sole purpose of a ‘pump and dump’.
- Etrade is my overall top choice as they have a flat fee rate combined with excellent trading software.
- Current promotion – trade free for the first 60-days for accounts greater than $10,000
- $500 minimum for a cash account and $2,000 for a margin account.
- No surcharges on penny shares and discounts given on large orders.
- Great investment tools for research and the executions are lighting fast.
- Better suited for frequent traders because of their tiered pricing structure, so it’s not ideal for non-active investors will pay extra commissions.
- Customer service is above average in comparison to others and 24/7 email and phone support is available.
- Video lessons available to teach the basics of the stock market
- Major downfall is not accepting people from certain countries.
- Tim Sykes favourite broker at the moment.
- While Interactive Brokers have poor customer support they are the best option for shorting shares under $2.
- Have some of the best borrows for stocks, although shares to short go fast.
- Trading platform is difficult to learn and not recommended for novice investors.
- $10,000 account minimum is not suitable for most retail traders.
- Pricing structure is flat, fee of $0.005 per share depending on volume.
- Charge fee’s to modify or cancel an order and charge a $20 monthly inactivity fee.
- Commissions are expensive unless you’re an active day trader. Their customers are mainly made up of high net worth individuals and massive institutions.
- Unlike Etrade they accept oversea’s international traders and don’t discriminate against certain countries.
- Have been in business for over 40 years.
- Took over Thinkorswim back in 2009, which was my previous preferred option.
- They have a solid trading platform and useful charting tools with tutorial videos to help get you started. Despite this in the past their platform has suffered from minor technical errors, pissing off customers who were looking to exit trades.
- TD Ameritrade offer good customer service, 24/7 support. Some of my emails have been replied to within 30 minutes.
- No account minimum deposit (normally at least $1,000 is required) and no surcharges on shares below $5
- No monthly or inactivity fees, so they’re perfect for long term investors.
- Great executions and has decent borrows if you’re interested in shorting penny stocks.
- Free paper trading demo, helpful for beginners who wants to test strategies and get a feel for the market.
- The main complaint about TD Ameritrade’s is their fee’s. $9.99 is a lot more expensive in comparison to other companies. It can be argued charging more than competitors allows them to offer better customer support or maybe they’re greedy like everyone else on Wall Street
- Best thing about Suretrader is the opportunity to bypass the pattern day trader rule, as it’s located offshore in the Bahamas. The PDT rule is an SEC rule that does not allow people with accounts under $25,000 from executing more than 4 or 5 day trades in any 5-day business period. This is really annoying, making it really difficult to grow your account quickly but at the same time safeguards day traders from losing money.
- Customer service is relatively poor because they have so few customer rep’s to service all their customers. Most of which are inexperienced traders who don’t a clue how to even place orders.
- Suretrader is a tiny company, according to Linkedin they only have around 6 employees.
- In recent times their CEO, Guy Gentille was indicated by the SEC for penny stock manipulation. It must be noted that although Suretrader had no involvement in the schemes it has affected their reputation. Hearing news like this would make me feel uneasy. So for that sole reason I wouldn’t have more than $2,000 with them.
- $500 account minimum but do charge an ECN fee of .003 per share for routing.
- Charges $4.95/trade for up to 1,000 shares but do charge an ECN fee of .003 per share for routing. Up until the end of the year they offer $3 per trades, use the promo code Celebrate2016 to avail of this discount.
- Currently offer 6-1 leverage and in the future plan to offer 20-1 leverage. (I highly recommend not using any leverage)
- Good borrows for hard to short stocks and have a massive list of 10,000 symbols to short sell.
- Good option for penny stock traders in the UK / outside US with very little capital who can’t afford or won’t aren’t able to open accounts with more reputable company like Etrade.
- No longer recommend by Timothy Sykes.
- There is very limited information about the company available on Google even though they started in 2000, they don’t even have a Wikipedia page.
- Better suited for OTC stocks, it only costs $7 per OTC trade.
- Have a volume surcharge of one percent for trades over 500,000 shares.
- No account minimum.
- Charge inactivity fee’s, $30 per quarter.
- Free web platform is too basic and need to pay a $15 per month for their advanced platform.
- Rarely offer promotion codes to new clients.
Too many people especially teenagers are too eager to start day trading. They see photo’s on Instagram of Timothy Sykes advertising his lavish lifestyle, travelling abroad in exotic locations. People want to start making money straight away. Be patient, instead take things slow and paper trade for at least 3 months. Remember you have to learn before you earn! Once ready I recommend starting with at least $2,000. Etrade and Interactive Brokers are the top two online penny stock brokers with the best reputation.