– Before you Begin Searching for Penny Stock Brokers…

If you’re looking for an online broker to trade penny stocks with, there are a few critical points to look for. Almost every discount broker have a fee for stocks under $1 which can make trading those types of equities more expensive than a big board stock.

The main reason is that a large number of brokers simply don’t want the hassle of passing the trade through a market maker who deals with the stock or because the small amounts typically traded on penny stocks since the majority of their revenues are driven by large, active accounts.

Having received feedback and researched 2012’s best stock brokers in the “discount” arena, we have come to the conclsion that E*Trade is simply the best for being able to conduct trades timely and for a reasonable price.

Another fee that can be added to your order when penny stock trading is to have a “large order surcharge” that is effective on orders placed of more than 100,000 shares.

When trading the “Double 0’s” or “triple zero” stocks, sub-penny stocks, a $200 position could be 1,000,000 shares. Hence, the added fees, normally marked by an asterisk (*) in fine print at the bottom of the page, can break the percentage gains if not properly calculated prior to entering a position. There are, however, a small handful of penny stock brokers who charge a 1% fee when placing an order for 500,000 shares or more when we researched them.

E*TRADE Securities ratings for Online Broker by SmartMoney Magazine, May 2012 Broker Survey, based on the following categories: Trading Tools (5 stars), Customer Service (4 stars), Banking Services (4 stars), Mutual Funds & Investment Products (4 stars), Research (5 stars), and Commissions and Fees (2 stars). SmartMoney is a registered trademark, a joint publishing venture between Dow Jones & Company, Inc. and HearstSM Partnership.

Furthermore, ask about settlement fees for Non-DTC securities. Some online brokers like Zecco pass the costs over to the account holder which can , again, be an uncalculated fee which eats away at your percentage gains.

The only way you will know if a stock is DTC-eligible or Non-DTC is to research it or ask your broker. If place an order and can’t buy it, it may be that your online broker, ChoiceTrade for example, won’t even let you take a position in a Non-DTC stock.

E*TRADE Securities ratings for Barron's annual ranking of the Best Online Brokers (March 12, 2012), based on Trade Experience and Technology, Usability, Mobile, Range of Offerings, Research Amenities, Portfolio Analysis & Reports, Customer Service & Education and Costs. E*TRADE overall ranked #10.

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