Note that penny stocks are also known by other names, including "Pink Sheets," "OTCBB" (over-the-counter-bulletin-board), and "micro caps," and all four names are interchangeable. CreditDonkey took a look at some of the online brokerages that offer penny stock trading to determine which is best overall, so that you can make an informed decision on which brokerage might suit your personal penny-stock-trading needs. Online brokerages make money via commission, which they charge you every time you make a trade. While most brokerages do allow for penny stock trading, not all of them cater to the specific needs of the pink sheet trader. Not all trades are created equal, and not all brokerages will allow you to trade whatever you want, however you want.
Yes, Interactive Brokers is known for having some of the best pricing in town, but not so much when it comes to penny stocks, as they are purchased in high-volume. Who It Works Best ForSeasoned, active traders who know the penny stock market well and trade frequently.
DownsidesInteractive Brokers is definitely not for everyone and certainly not for beginners. Even though its prices per trade are relatively high, E-Trade makes our list because it's a great platform for both newbies and frequent investors alike. Who It Works Best ForPeople who use E-Trade as their overall online brokerage who like to dabble in penny stocks now and then. Why We Like ItEven though its $8.95 fee seems steep, there are no additional charges, so you may find greater savings here than you would with other online brokerages.
Who It Works Best ForOptions investors who already use OptionsExpress as their online brokerage but are looking to cast a wider net and try their hand at penny stocks.
TradeKing, Scottrade, and TD Ameritrade are also good brokerages to consider when playing around in the penny market game. This is a great question because trading penny stocks can become a nightmare for a person that has the wrong broker.
I personally use this online broker and they are hands down the worlds best broker for serious penny stock traders. The Das Pro trading software that they provides is one of the best direct access trading platforms currently on the market.
Depending on your trading frequency, this can really add up, especially when it comes to additional fees and surcharges associated with trading penny stocks. If you really want to have unlimited trading capabilities in this unpredictable market, you'll want to look for a brokerage that doesn't hinder your pink sheet investment strategy. Buying 50,000 shares of a pink sheet stock will cost you $250 for the entire trade with IB's price structure.
Short selling (trading on borrowed stock) is allowed, and it's very popular in the penny stock investment field.
Investors who already use Interactive Brokers as their platform and want to try their hand at pink sheet trading.
First off, you'll need 10 grand just to open an account, and you'll pay more for each trade when you purchase a large quantity of shares (which is necessary to profit in the penny stock world). Being one of the top online brokerages in the field, there's a good chance you'll utilize E-Trade as your overall brokerage if you're a self-directed investor and, because of that, would be likely to use its platform for penny stocks as well. It's easy-to-follow platform is inviting for novice investors who want to get into the penny stock market.
If you're looking to trade in pink sheets and penny options, it offers you that capability at a good price, in addition to the other perks you get from its platform. Like its name states, it's geared towards traders who want to invest in options, so it doesn't support penny stock trading with the same panache as other online brokerages. TradeKing only charges $4.95 per trade, but requires a minimum investment of $100 per order in penny stocks and doesn't accept opening trades below 1 cent per share. Most brokers either will not allow their customers to trade penny stocks (stocks priced under $5.00) or they will allow it, but provide terrible executions and have high commissions. And there's another caveat: This is an online brokerage specifically geared towards high-volume, seasoned, professional-level traders. There's also a steep learning curve when utilizing the sophisticated charting and tools it offers, so you won't be able to dive right in to pink sheet trading until you've got a grasp on the resources provided and how to use them to best serve your strategy.
If you need assistance on a penny stock trade, you can call customer service, but keep in mind you'll be charged a $25 fee for a broker-assisted trade. You can also buy unlimited shares, which is important when it comes to penny stocks as they're sold in high volume. For this reason I suggest avoiding most brokers including brokers such as Scottrade, Zecco, Questrade, Fidelity Investments, Sogotrade, Thinkorswim, Investrade, Firstrade, Sharebuilder, Just2trade and TD Ameritrade.
If you are placing 3 day trades a week you may need to deposit a minimum amount for $2,000 since you will need a margin account for this. Check out this Kiplinger article about the perils of penny stocks; if this type of trading still intrigues you and you're ready to dive in, you'll need to get started somewhere.
The charting abilities on Interactive Brokers and the tools it offers to help you capitalize on your investment strategy are especially helpful when trading penny stocks. Scottrade actually has an information page devoted to penny stocks on its website, but you'll pay $7 per trade, plus .05% principal for any stock trading under $1. Like any other broker if you want to be an active day trader and places more than 3 day trades in a 5 day period, then you must maintain a balance of at least $25,000. That said, pink sheet trading is best suited for an experienced trader anyway, as the skills and strategies necessary to perform well in this arena require an online brokerage that caters to such an investor. For this reason some of these brokers may take up to several minutes to exectute your trades at times and in volatile penny stocks, this can result in your losing thousands of dollars. You need a broker that will allow you to to get in and out of penny stocks quickly, and provide low commissions so that your profits are not eliminated by transaction costs. A big reason 95% of people lose at trading is because they do not have access to these features that the best penny stocks broker provides. This rule is definitely a hinderance but you certainly can overcome it pretty quickly once you acquire a trading strategy that works and can execute your strategy through the best penny stocks broker.
Althought the software is has a monthly fee, if you place enough trades so that the total amount of your trades adds up to more than the cost of the software, they will give you the software for free! This compensation may impact how and where products appear on this site (including, for example, the order in which they appear).
CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice.
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