Buy Penny Stocks Guide

Choosing the best penny stock brokers for your trading style is a very individual decision.  Each broker has a different pricing structure for buying penny stocks or buying a large block of stocks.  You need to understand how you intend on trading before choosing online penny stock brokers in order to better gauge how much money your orders will cost you.  If you have an eradicate trading style than you may want to open an account with multiple brokers so that you can use the proper broker for the proper trade.  For the new penny stock trader, keeping your commissions under control can be the difference between profitability and bankruptcy.  For the advanced penny stock trader, you already know that one website order drop or delayed order fill can turn the best trade of the year into a missed opportunity or even a nightmare.

Here are a few of the top penny stock brokers and their differences.

Zecco
Zecco is dirt cheap, no doubt about it.  They are currently at $4.50 per trade with no “per share” fees.  The only problem is they don’t emphasize penny stocks in their trading.  Normally, this means they don’t know the penny stock community.  They are really great though if you also do forex and option trading.  If you are a smaller trader this is a great option because the low flat fee makes the commission percent of trade very manageable.

TDAmeritrade
TDAmeritrade is a little more expensive stock broker.  The good part is they have a emphasis on OTCBB or pink sheet trades for the same flat fee of $9.99 per trade.  This company is very established with very powerful charting tools and the ability to trade pre and post trading hours.  This is great for those nano companies that love to give press releases at the closing bell.

ChoiceTrade
ChoiceTrade is another cheap option at a flat $5 per trade fee.  They also offer mobile trading (for you cell phone junkies) and direct access trading.  If you are a scalper or large trader than direct access allows you to bypass the web portal and order batching.  Your order directly hits the market on your own.
The bad part of ChoiceTrade is they charge for almost all of their information services on a monthly basis.  These nickel and diming fees are both annoying and draining when your trading is going poorly.

SogoTrade
SogoTrade is probably my favorite unknown online broker.  They are only $3 per trade!  However, for the true penny stock traders (Under $1 per share) they add ½% of the trade value for each trade.  They have great trade execution (basically a virtual direct connection) and no inactivity, information, charting, or any other hidden fees.

LowTrades
I question LowTrades simply because they won’t post their pink sheet fees.  They have a nice low $4.95 flat fee, but they say there are settlement fees for OTC stock trades, but they are not listed anywhere.  That just screams trouble to me, so I haven’t even bothered to try them.

Scottrade
Scottrade has a $7 fee with a ½% principal fee for stocks under $1 per share.  However, they are a powerhouse in the industry.  They offer quality information and charting systems and how massive trading power since the volume of dollars they move affords them the best stock traders and programmers.

In summary, though there isn’t one best penny stock broker for everyone, if you’re brand new to penny stock trading I recommend you just go the cheapest route which would be Zecco unless you are only doing NASDAQ penny stocks ($5 per share) in which case I would probably choose SogoTrade.  If you are a larger investor I would go with ChoiceTrade for the quality direct access or Scottrade for the professional platforms.

One of the first questions you may have is how to buy penny stocks.  Before we get there though, you should first understand a little about what penny stocks are.

Penny stocks, also known as nano stocks, dollar stocks, and micro cap stocks are by definition any stock trading below $5 per share.  As such, penny stocks do not typically trade on major stock markets like the National Association of Securities Dealers (NASDAQ) or the New York Stock Exchange (NYSE), unless of course the stock temporarily dips below $5.  Instead, you will find penny stocks listed on the over-the-counter (OTC) and the Pink Sheets markets.  Unlike the OTC however, the companies listed on the Pink Sheets market do not need to file current financial reports with the Securities and Exchange Commission (SEC).

So, how to buy penny stocks?  Well, similarly to buying other types of stocks, your main two options for buying penny stocks are via a full service brokerage or using a Discount Brokerage account.

Using a full service brokerage will mean dealing with a penny stock broker.  You give your broker (usually done over the phone) the number of shares you wish to buy, the maximum price you wish to pay, and the ticker symbol of the stock.  The stock broker would then attempt to purchase these stocks on your behalf.  The stock broker gets payed either through a commission per transaction or more commonly through principle transactions, meaning they would make money on the difference between the bid price and ask price, known as the spread.  The main advantage to using a full service brokerage account is that your stock broker can typically give you investing advice as well as facilitating the trades for you.  The main disadvantage however, is these services are typically expensive.  If you decide on a stock broker, be sure to find one that is reputable and trustworthy with a solid track record.

Alternatively, you may create an account with a Discount Brokerage firm.  Once you’ve created an account, you can make trades online and with relatively little effort.  The main advantage with a discount brokerage account is that it’s much cheaper than using a full service brokerage but you need to know what your doing so it’s not advised for novice investors.  Also, for very thinly traded penny stocks, you may simply not be able to execute your desired trades for the price you want without the use of a stock broker who has more resources at hand.

Knowing how to buy penny stocks is one thing but knowing the best penny stocks to buy and when to sell them is another.  Remember, trading penny stocks has a very high risk attached to it.  Yes the rewards can also be great, but you need to know what you’re doing so whatever you do, don’t just go off and start buying random penny stocks hoping they’ll appreciate in value.  Get educated first.