See the bottom of this page for some top broker choices!
Getting a trading account set up is as simple as opening a bank account. For most online discount brokers, you can do the whole process over the Internet.
There are Two Types of Brokers
I strongly recommend using a discount broker, especially for penny stocks. Usually you can open an online trading account, which is certainly the best way to go to monitor and view all your trades, history of transactions, and to get quotes and information on the penny stocks that interest you.
They are also less expensive, often allowing trades for as little as $5.
These deal one on one with the client, and are usually better suited for traders with very large portfolios. The commissions are high, usually several hundred dollars for the same trade you could have made for $15 through a discount broker.
You will have access to a full service broker's advice, and they will come to you with investment ideas. They are generally afraid of penny stocks and discourage their clients from investing in such equities.
Choosing a Broker for Penny Stocks
First you need to decide on your own requirements from your broker. There are many choices out there competing for you as a client, so be choosy and make sure to get the best one for your own needs.
Perhaps you are not starting with a large amount of money, and therefore high commissions will be too expensive. Will you be involved with foreign stocks, and do the brokers you have in mind have strict policies for foreign trading? Will you be trading bonds? Canadian penny stocks? Do you have an existing broker you are happy with? Do they allow penny stock trades? Will you only be able to trade by phone?
We feel the best approach is to have one good broker, not three or four. If you currently have several brokerage accounts, consider transferring all of your assets to the one broker who works best for you overall.
I have found that this is the most important consideration for most penny stock traders, due to the higher
trade frequency, and the lower total dollar amounts, which makes brokerage fees very significant. However, I also feel that this should not be the primary consideration, assuming that the brokers you like have competitive rates.
Speed of Order Execution
I feel that this is the most overrated criterion when choosing a broker.
Despite what advertisements may lead you to believe, the speeds of most brokers are approximately the same.
While penny stocks can be volatile, they will usually sit within each price range more than long enough for you to enter and exit at the prices you decide. It will more likely be your own hesitation or the time it takes you to make your trading decisions that will affect your trading prices.
This can be very important. Brokers do make mistakes, and their web sites go down, and even their computerized trading programs can foul up. There is nothing worse than going to make a time-sensitive trade and being unable to access the web site. When it comes to fast-moving penny stocks, this could be very costly.
Policies With Penny Stocks
This is the most important consideration for penny stock investors in my opinion. Policies include things like the minimum required balance (if any), commissions on penny stocks and foreign stocks compared to regular fees, monthly fees, and the ability (or inability) to trade shares from the penny stock markets. While one broker may not allow trades in shares under $1.00, and requires a $2,000 minimum deposit, another may not have limitations on either.
If a trade does go wrong, or even if you just have a quick question, you need to be able to get through to your broker without sitting on hold all day long. You also want to feel that your questions and concerns get answered, regardless of whether it is by e-mail, phone, or otherwise.
On a similar note, when you do get through, are their replies professional and courteous? More importantly, are they timely and correct?
Research and Tools
This should be a secondary consideration. There are so many free sources for data and information that you may not ever use the 'bell and whistle' features that your broker provides.