We’re going to assume that by looking for the answer to the above question, you already know what a penny stock is and all the associated risks with putting your money on the line to invest or trade them. That said, not all brokers make it easy to research and trade penny stocks, which we’re loosely defining here as stocks that trade on the “over the counter” (OTC) market. We’re not going to even attempt to cover every broker out there either. We’re just going to touch on a few popular ones in the U.S. and Canada that cater to penny stocks and have online platforms to make due diligence and trading a breeze.
When picking a broker, consider that some charge large or even variable fees for penny stocks. The ones we're suggesting below either don’t have any fees or they’re flat-rate and generally inexpensive. If you’re looking for more information on selecting a broker in general (full service, discount, etc.), be sure to check out our article covering that topic.
U.S.
Best in Breed: Charles Schwab, ETrade
These brokers keep the playing field pretty level. Remember, because penny stocks are inexpensive by definition, they often trade in large amounts. Consider that $1,000 worth of a stock trading at half a penny means a person is buying 200,000 shares, so a surcharge on the number of shares being bought and sold can add up quickly. Make sure you know exactly how much each trade will cost. The above-mentioned firms don’t have surcharges, so buying 200,000 shares costs the same as buying 2 shares of a stock trading at $500 per share.
Generally speaking, the minimum amount to open an account is reasonable also. The discount broker space is uber-competitive and no fee trading commissions are standard these days.
E*Trade and TD Ameritrade are two highly rated brokers for penny stocks because they have no commission trading fees. On top of that, their platforms are top shelf. For example, E*Trade’s Level 2 quotes are hard to beat, but that may be a paid add-on to your account. TD Ameritrade has its ThinkorSwim platform that is considered by many as the best in the business. Don’t be afraid to ask for a demo to check out what companies have to offer and to get services that normally have a fee for free for a while.
Canada
Best in Breed: Questrade and Scotia iTrade.
Moving north of the U.S. border doesn’t change any of the rules for finding a broker that has favorable rules, fees and research for penny stocks. Questrade is a popular choice because it is very inexpensive and penny stock friendly.
Canada’s big banks have done well to compete in the space too. For example, Scotiabank has Scotia iTRADE, BMO has InvestorLine and RBC Direct Investing all offer similar pricing and market tools that are valuable in research.
Be Patient, Stocks Will Be There Tomorrow
One thing we cannot emphasize enough is taking your time and exploring what brokers have to offer. Don’t rush; that’s one of the fastest ways to “brokeville” in penny stock land. Remember that there is a good reason that penny stocks are trading at the valuation that they are, mostly because they’re highly speculative and many companies could be unproven at this point. Don’t be afraid to “paper trade” and use practice tools that brokers provide to get your feet wet if you’re new to penny stocks. And most importantly, no matter which broker you choose, never, ever put a penny in an account that you can’t afford to watch evaporate before your eyes because penny stocks are high risk plays.
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