Penny Stock Brokers

Just2Trade is the new winner for the cheapest possible discount stock broker. The commissions are a mere $2.50 per trade, any size. I just opened an account. The quote watch window is pretty basic, and doesn't show the bid and ask prices and sizes. Strange. However, the research looks very impressive. They have a pretty advanced stock screener among other things (although it doesn't do what the Gigascanner does, by a long shot).

Update: There's a Java applet trading platform that works extremely well. The regular quote window is unnecessary. I like it!

Another update: There's just one annoyance - said Java trading platform uses 99% of the CPU - even when there's nothing going on - draining the battery in my laptop in record time! And getting way too hot too. Best to run it on a dedicated, non-portable machine.

And yet another update: I've abandoned the Java trading platform, and just use the web page to place orders, and also check the account value. The executions are lightning-fast, with accurate fills. The web page keeps itself logged on, which is probably not what they intended, but I find it very convenient. How frustrating is that when you go to punch in a trade and the page reloads, and you have to log on again, and navigate to the right page, and set up the trade all over again, and then you've missed your price? Also, it's only $2.50 per trade, did I mention that?. I like this broker so much I'm linking to them.

Broker Reviews and Comparison

The most important feature in an online penny stock broker is probably a low per-trade commission structure, along with a clean web interface and a reliable and fast back-end. You probably can't afford to pay up for the fancy features some brokers offer, and you probably don't need them anyway.

There seems to be quite a range of commission fees out there, like four-to-one, even among so-called discount brokers. For me it's all about low costs, especially when trading penny stocks, since the dollar amount on the trade tends to be low, and I tend to trade them more frequently, with maybe several trades per week, or even daily trades when a portfolio of symbols is involved, and all this can really add up. It can easily turn into a ball and chain on your profits. You should have an expectation ahead of time for the size and frequency of trading you'll be doing, to estimate the transaction costs.

The other prerequisite is a well-designed, easy-to-use online trading platform, with prompt and accurate order execution. Good customer service helps too, in case you have to get a broker on the phone asap (it happens sometimes).

Some of the higher-end discount brokers feature a full range of services, from international trading to checking accounts, with elaborate research tools and fundamental data that you probably don't need, in my opinion. It's not worth paying higher commissions for.

Fidelity has a comprehensive web site and a range of tools for research and financial planning. Notwithstanding stocks, they also offer trading in options, and bonds, and a vast selection of no-load mutual funds. They used to be on the expensive side, but have announced a new discounted rate, just $7.95 for all online equity trades, any number of shares. This is now lower than Schwab, Etrade, and TDAmeritrade.

Etrade I have more experience with. They charge $9.99 per trade unless you do more than 0 - 149 trades per quarter, in which case the rate drops to $7.99 per trade. The web site is not very convenient to use, with too many clicks required go navigate between the important pages. As far as I can tell there's no way to see your entire account, all your positions, number of shares and total market value, plus cash and/or margin balance, on one screen. I'm not impressed.

Scottrade I have a fond feeling for. Their web site is very good, and online trades are $7.00 flat. Broker-assisted trades, on the other hand, are $27.00. You'll probably want to avoid that. There's some fine print about stocks that are literally penny stocks: "For stocks priced under $1, add ½% of the principal value to the commissions shown." (This add-on fees for ultra-cheap stocks is not just a Scottrade policy, it's typical throughout the industry.)

Note that stocks commonly referred to as "penny stocks" are not usually priced in the penny range, below 1 dollar per share. More typically they will trade in the range of perhaps 1 - 10 dollars. It's the result of rampant inflation over time.

Tradeking probably has the best combination of low prices and good customer service. The commissions are just $4.95 per stock trade, with no minimums and no hidden fees. The true penny stocks add-on fees are handled a bit differently than the others: TradeKing adds $0.01 per share on the entire order for stocks priced less than $1.00. It seems like that could add up to a lot more than ½%, as is typical. Truth be told, I thing trading in stocks this cheap is a very bad idea, potentially very risky to your account value - but that's just my opinion.

Also worth mentioning, the Tradeking phone service is good, with short hold times, fast email responses and instant online chat. They were ranked #1 in customer service by SmartMoney Magazine in 2008 and 2010.

Optionshouse has the rock bottom commission schedule. Online stock trades are just $2.95. The extra ½% fee applies on stocks less than $2.00, not $1.00 like the other guys. Notwithstanding stocks, they are also set up for the serious option player with powerful research and trading tools. This is one I'd like to try. Update: Optionshouse has raised their rates to $3.95 per trade. Maybe I won't bother.