Finding penny stock brokers is a simple process because the best online discount stock brokers are also the best penny stock brokers. There are a few issues to consider when comparing penny stock brokers and those issues should be considered when comparing discount brokers as well. The main things to look at are the minimum initial fees, trading fees, and ancillary fees.
The minimum initial fee is the amount you need to deposit in order to open an account with a stock broker. This will range from zero to millions, depending on how much management you are requesting from your stock broker. As a penny stock trader, you are most likely looking at how to become a day trader, or are already there, so you will want to primarily look at online penny stock brokers like E*Trade, Ameritrade, or Scottrade. Each of these companies has a minimum initial balance so after determining how much you want to invest in penny stocks, look at the minimum initial balance of the penny stock broker.
Trading fees are a fee imposed by the broker for each stock trade. Most online penny stock brokers will list two different fees. The first is for online trades. The second is for broker assisted trades, which means that you had to call the broker directly to help you buy or sell the security. Some penny stock brokers do not charge a separate fee if you begin the trade online but are then forced to call. Why would you be forced to call? This would occur when there is not enough information online about the security. Perhaps the exact price isn’t readily determinable or the volume is so low that you can’t execute the trade without assistance from a broker at the company. Look carefully at the trading fees remembering that every time you execute a trade that fee will cut into your profit or extend your loss. The amount is small but can do some damage over time, especially if you aren’t picking many winners.
Penny stocks are inherently risky. They have the potential to be a high return investment, but that is accompanied by high risk. The nature of penny stocks also presents a few problems for penny stock brokers as well. The first is the low trade volume of some penny stocks. Small cap stocks generally trade with less frequency and it may be harder for a broker to execute a trade. This means added risk for you and potentially less profit for the broker. Due to this, the broker many times adds fees to the normal online trading price. These ancillary fees will surprise you and eat into your profit or exacerbate your loss. Some penny stock brokers tack on a few to the principal balance of the trade. You may also be charged for multiple trades, even if you asked for your penny stock shares to be sold on the same day because the broker might have to execute the trade across multiple days because of the low volume. Finally, another common, hidden fee is added for calling the trading desk. Because of the low trade volume and lack of information on some penny stocks, you may be required to call the trading desk of your penny stock broker. Executing the trade via phone instead of online may cost you money. Consult the fine print. Also see my posts on E*Trade, Scottrade, and Ameritrade.
In the end, remember that the penny stock brokers are looking to profit from enabling you to trade securities. This means they are going to require you to pay them for executing trades. They are also going to require a minimum initial balance. Finally, they have ancillary fees that will surprise you if you don’t read the fine print. Take time to review a penny stock broker comparison so that you don’t get burned by fees on the back end.