Every week I get dozens of emails from traders looking for a suitable penny stock broker that will allow them to day trade online. Despite it being less expensive, finding a suitable trading platform specifically for penny stocks is still a frustrating task that will leave you pulling your hair out. There are so many factors involved in selecting a broker that you need to be aware unless it will impact your trading performance. For example, you don’t want to end up using a brokerage such as Robinhood for penny stocks because you’ll be at significant disadvantageous to others. Below I outline the most important elements to consider in your selection and I also evaluate the top 7 penny stock brokers.
3 Main Things to Watch out for:
- Surcharges – Depending on the broker, most will add a surcharge to shares under a dollar. TradeKing charges an extra one cent per share below $2, so if you buy 10,000 shares, it’ll cost you an additional $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 excellent discounts on large orders. E.g. TD Ameritrade, Etrade, and Charles Schwab all provide flat fees or substantial discounts with no sneaky hidden fees that catch you off guard.
- 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 shorting a penny stock online.
- Volume Restrictions – Ideally you want the ability to trade an unlimited amount of shares without surcharges.
Penny Stock Brokers Compared
|Brokers||Best Features||Commissions||Minimum Deposit||Good for Short Selling?|
|Etrade||Trading Platform||$6.95 flat rate||$0||Yes|
|Interactive Brokers||Cheap Commissions||$0.01 per share||$0||Yes|
|Charles Schwab||Overall Low Costs||$0||$0||Yes
|TD Ameritrade||Trading Platform||$6.95 flat fee||$0||Yes|
|ChoiceTrade||Low Account Minimum||$7 ||$0||No|
|TradeStation||Trading Platform||$0 for to 10,000 shares, $0.001 after.||$0||No|
- Etrade are a great choice because they offer a large selection of penny stocks and charge a flat rate of $6.95.
- $6.95 flat rate drops to $4.95 if you execute more than 30 transactions in a quarter.
- Low account minimums – $0 minimum for a cash account and $2,000 for a margin account.
- Useful investment tools for research and executions are lighting fast.
- Customer service is above average in comparison to others and 24/7 email and phone support is available.
- The only negative is Etrade don’t accept people from certain countries.
- Tim Sykes’ preferred broker at the moment.
- Interactive Brokers is one of the leading firms that cater to international investors.
- Charge a fee of $0.01 per share with a max cost of 0.5% of the trade value makes it a bit more expensive than other brokers but IB provide better access to OTC and pink sheet stocks.
- Their account minimums have been slashed, $0 for a cash account and $2,000 for a margin account. In the past their account minimum was $10,000 which was quite steep.
- Charge fees to modify or cancel an order and monthly inactivity fee ranges from $3 to $20.
- Commissions are expensive unless you’re an active day trader.
- Have poor customer support but are the best option for shorting shares under $2.
- Have some of the best borrows for penny stocks, although shares to short go fast.
- The trading platform can be challenging to learn at first and is not ideal for novice investors.
- Unlike Etrade, they accept oversea international traders. They don’t discriminate against particular countries which is a huge positive!
- Charles Schwab is one of the most iconic and well-known brokers on Wall Street.
- Schwab charges $0 for penny stock trades and to compete with the likes of Robinhood.
- The account minimum is $1,000 and unlike some firms, they don’t charge any inactivity fees.
- Etrade’s trading platform is superior, Charles Schwab does offer cheaper trades and is better suited for beginners.
- Unfortunately, Charles Schwab doesn’t provide paper trading accounts.
- TD Ameritrade has been in business for over 40 years and is well-known for their “thinkorswim” trading platform.
- They have a robust trading platform and excellent charting tools.
- TD Ameritrade offer good customer service, 24/7 support. Some of my emails got replied to within 30 minutes.
- No minimum account deposit 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 want to short sell penny stocks.
- Free paper trading demo, helpful for beginners who want to test out strategies and get a feel for the market.
- TD Ameritrade charges $6.95 per trade, not the cheapest around but still as a discount brokerage.
- There is 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 and pink sheet stocks, it only costs $7 per trade for stocks under $1.
- Have a volume surcharge of one percent for trades over 500,000 shares.
- No account minimum is perfect for penny stock investors.
- Charge inactivity fees of $30 per quarter.
- The free web platform is basic and you need to pay $15 per month for their more advanced platform.
- TradeStation charge zero commissions to buy up to 10,000 shares but after the surcharge is $0.001 per share.
- $0 account minimum, you need to deposit $2,000 to get access to all three TradeStation platforms.
- TradeStation’s trading technology is highly rated in the industry and offers a solid trading platform with advanced tools.
Other Things to Consider
Each brokerage will have different account minimums, commissions, and trading restrictions.
- Account Size – The biggest obstacle is not having enough capital and people don’t realize there’s a pattern day trader rule that will restrict your activity to 4 trades in 5 business days. I suggest starting off with $2000 to make it worthwhile as commissions will impact your profits. It’s crazy to think that TD Ameritrade & Robinhood have no minimum deposits to entice new customers.
- Where you live – People who live outside the United States will have a harder time finding a penny stock friendly broker because some companies don’t accept people from certain countries. Luckily, Interactive Brokers allows customers from countries like the UK and Australia but will need at a minimum of $10,000.
- Quality of customer service – The bigger your account size, the better customer service you will receive. Brokers treat their big clients a lot better for obvious reasons and hate dealing with poor people. That’s why they discourage people from penny shares because they have received a bad reputation 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 that will later become pump and dumps.
- Trading Tools – For active traders, trading tools play a big part in their success. All the top brokers should provide live streaming quotes, free demo accounts, level 2 quotes, scanners, mobile apps, and stock charting tools to perform technical analysis. Charging extra fees for trading tools is normal practice.