How to Choose the Best Penny Stock Broker

Choosing the right stock broker is one of the first things you need to do when you start trading. New traders are always looking for broker recommendations, as if there is a “holy grail” of brokers kept secret by elite traders. Before we dive into our considerations and recommendations, it’s important to remember that, in most cases, your broker won’t make or break your success. Your broker is just one tool in your trading toolkit and, assuming you choose a reputable broker, you should have access to all of the tools and resources you need. While there are differences between brokers, the choice between ETRADE, TD Ameritrade, or other brokers will be one of the easier ones you make in your trading career.

Choosing a Penny Stock Broker

While all brokers serve the same general function, little differences can make an impact on your trading. Choosing the best penny stock broker is slightly different than choosing a broker for investing or momentum trading. Let’s discuss some of the considerations.

Per-Trade Pricing

Stock brokers generally offer two commissions structures: per-share and per-trade. With the “per-share” commission structure, traders pay a commission based on how many shares they trade. For example, a 100 share order may incur a $0.50 commission at a rate of $0.005/share. With a “per-trade” commission, traders pay a flat-rate, regardless of the volume traded. For example, a trader may incur a $6.95 commission regardless of whether they trade 100, 1000, or 10,000 shares.

While per-share pricing may work well for momentum traders who scale in and out of positions, it’s not a feasible option for penny stock traders, especially those who trade sub-penny stocks where the share price may be equivalent to the per-share commission itself. Per-trade commissions are essential for penny stock traders.

Trading Platforms

Penny stock traders, like all traders, need access to solid trading platforms. It’s important to have access to quality stock charts, news, watch lists, etc. If you have specific needs (such as scanning tools or complex order types), make sure to review the trading platform before opening a trading account.

Level 2 Trading

Level 2 screens are a big part of many traders’ strategies, however they are exceptionally important for penny stock traders. Level 2 screens allow traders to analyze supply and demand in the market. Penny stocks are generally have lower liquidity and higher volatility when compared to blue chips and NASDAQs. Level 2 screens can help penny stock traders better understand price action, allowing for improved entries and exits.

No Additional Fees

Most modern-day penny stock brokers will offer many of the tools traders need, however not all brokers will offer these tools for free. Certain brokers charge additional fees for trading platforms and level 2 access. While this may not be a big deal to traders with bigger accounts, most penny stock traders are focused on making the most of their capital. If you have a smaller account, the last thing you want to do is incur additional fees (especially when you don’t need to). Before choosing a broker, make sure you are clear on any additional fees you may incur.

Account Minimums

Penny stock traders often come to the market with smaller accounts. After all, the appeal of penny stocks is that they can be purchased for such a cheap price. Many stock brokers will have an account minimum, requiring traders to deposit a certain amount of funds before trading (i.e. $2000). Before choosing a broker, make sure they don’t have an account minimum.

It should also be noted that account minimums can be practical in certain cases. Trading with a $500 account can be difficult considering most commissions will eat 1% or more of your capital for every trade. Of course, you can trade with a smaller account but make sure you know what you’re getting into.

Penny Stock Broker Recommendations

Now that you know what to look for in a penny stock broker, let’s discuss some recommendations.

ETRADE

Based on our reviews, ETRADE is the clear winner for best penny stock broker. ETRADE is a leading discount broker with advanced technology and powerful tools. Here are a few reasons why we like ETRADE:

• Commissions start at $6.95 and go as low as $4.95 for active traders
• Multiple trading softwares offered for free
• ETRADE Pro is a powerful platform offered for free for active traders
• Powerful mobile app with Level 2 trading and intraday charts
• Online tools make it easy to fund accounts and manage portfolios
• Customer services is unbeatable, with a knowledgeable staff and 24/7 support
• No additional fees required to get access to trading platforms and level 2
• $500 account minimum
• Great new account bonuses (including free trade offers)

Read the Full Review Here

TD Ameritrade

TD Ameritrade is our second choice for best penny stock broker. TD Ameritrade is very similar to ETRADE and the choice between the two may come down to preference. Here are a few reasons why we like TD Ameritrade:

• $6.95 trade commissions
• Powerful ThinkOrSwim trading platform offered for free
• ThinkOrSwim allows paper trading (for newer traders)
• Powerful mobile app with level 2 trading and intraday charts
• Easy-to-use online dashboard for account management and funding
• No additional fees required to get access to trading platforms and level 2
• No account minimum
• Great new account bonuses (including free trade offers)

Read the Full Review Here

Scottrade

Scottrade is our runner-up choice for penny stock brokers. If for some reason you are unable to use ETRADE or TD Ameritrade (or maybe you want to open multiple accounts), Scottrade is a viable option. Here’s what we like about Scottrade:

• $6.95 trade commissions
• Quality trading platforms offered for free
• Free mobile trading app offered
• $2,500 Account Minimum
• Easy-to-use online dashboard

Read the Full Review Here