Are you looking for a brokerage firm that specializes in just penny stocks? Well from what I have found there really aren’t any penny stock brokers. However, there are online stock brokers with low transaction fees for penny stocks purchases and at the same time will allow you to trade other stocks. When selecting a penny stock broker, it’s important to find out how the broker defines a penny stock, since there can be additional fees charged for those trades. scottrade_logoFor example, Scottrade charges OTC stock trades $7, plus 0.5% principal for stocks trading under $1. That is an extra five dollars if your order totals $1000.

Brokers are responsible for executing a trade and facilitating the interaction between buyer and seller. Prior to the Internet a buyer would call up a broker and tell the broker which stock they want to buy, the number of shares and any other details relevant to the purchase, such as the highest price the buyer will pay for the shares. The broker would then place the trade and charge a large fee the service. You can still place an order by phone however most trades are executed online with a flat rate charge of ten dollars or less. Online trading has made the purchase of stocks a streamlined process for those people that understand how to place trades. Penny stock trading can be a little tricky so it is important to realize that if you need help with a trade over the phone the fee for the trade will be higher.

Number of Shares Traded Can Add to Transaction Cost

The commission you pay for a penny stock trade may be different than the commission you see advertised online. Some brokers charge an additional fee per number of shares traded which can markedly escalate the transaction cost. For instance, one broker may charge $9.95 for each trade executed plus $0.01 for each share with no minimum requirement for the number of shares. This fee structure can be problematic for penny stock investors because a fee of 1 cent per share will add 20% to the cost of the shares if you are buying a stock priced at 5 cents.

Let’s say you want to buy $500 worth of XYZ stock trading at five cents a share. You will need to purchase 10,000 shares to reach $500, 10,000 multiplied by $.05 equals $500. When you execute the trade at a broker charging a flat fee of $9.95 and 1 cent fee for each share, you will be charged $9.95 plus $100 (10,000 shares x $.01 equals $100) for a total of $109.95!

Questions to Ask When Looking for Penny Stock Brokers

  • Does the broker allow the purchase of stocks from OTC Market or OTC Bulletin Board listed stocks?
  • Are there additional fees for buying OTC Market or OTC Bulletin Board listed stocks?
  • Is there an account balance minimum that needs to be maintained? Remember, if your brokerage account is comprised of penny stocks, the value of your portfolio can fluctuate dramatically and your account balance can dip triggering low account balance warnings and/or fees.
  • Is there a special commission schedule for low priced stocks?

Key Points to Remember

When trading low priced stocks it is important to find penny stock brokers which will not take away your potential profits with excessive fees. Find a stock you want to buy and give the broker the specifics (stock symbol, price per share, number of shares, where the shares are traded) via email and ask what the transaction cost will be for the trade. Then use this information to help fill in the answers for the questions listed above. Please note, before placing a penny stock trade you may receive a notice from your broker asking you to verify that you understand the risks of trading penny stocks. Once you understand the risks and fees associated with penny stock trading you can buy with more confidence and hopefully profit handsomely.