Picking a broker is one of the toughest things for new investors to do. As a result, we constantly get e-mails like this one from our readers here at the Penny Sleuth…

To: PennySleuth@agorafinancial.com
Subject: Brokerage

Do you have a particular brokerage firm you use to buy penny stocks? I have a Sharebuilder account and cannot buy the stocks you guys like because they do not sell them… Please let me know who would be a good broker.

Thanks,
T.

Singling out any particular broker is a tall order for us.

That’s because each investor has a unique set of circumstances and requirements, as well as a different trading philosophy. That said, we can help to break down which brokers make the most sense…

It’s true that some brokers (like Sharebuilder) won’t allow you to trade low-volume OTC stocks. Others charge extra fees if you want to buy or sell shares of small-caps. That’s why we’ve compiled this look at some of the most popular brokers out there – with a focus on how to maximize your investing profits and minimize commissions…

In this report, we’re taking a look at how some of the biggest brokers in the business treat small-cap investors. For our purposes, we’re assuming that your brokerage account will contain less than $25,000 and you’ll be making less than 30 trades each quarter.

We’ll also lay out how much it would cost in commissions to make a sample trade, buying 1000 shares of a fictitious NASDAQ listed small-cap that trades at $1.00.

E*Trade (1-800-387-2331)

The original online broker continues to be one of the most popular discount brokerage options today. The company also features mobile account access for iPhone and Blackberry users, and a number of free research tools on their website and trading platform.

Scottrade (1-800-619-7283)

Scottrade is a solid brokerage choice for smaller investors who want low fees and a small minimum opening balance. If you want to invest in stocks that trade under $1.00, keep in mind that Scottrade charges 0.5% of the principal value in addition to regular commissions.

That means that buying 1000 shares of a $0.90 stock will end up costing you $11.50 in commissions.

ShareBuilder (1-800-747-2537)

While ShareBuilder is a good brokerage choice for new investors with limited capital and experience, its available stocks are limited to those on the ShareBuilder Stocks List, which doesn’t include many penny stocks – especially those traded OTC.

thinkorswim (1-866-839-1100)

thinkorswim offers its clients with advanced trading tools – like their terrific trading platform – at no charge, which is definitely a big benefit for more experienced investors. Their relatively high minimum opening balance may be a stumbling block for investors with limited capital.

Interactive Brokers (1-877-442-2757)

Aimed primarily at highly experienced and professional investors, Interactive Brokers offers an impressive amount of buying power and the use of highly customizable trading platforms. If you don’t have investing experience under your belt, stay away from IB.

Charles Schwab (1-866-232-9890)

Schwab is one of the largest discount brokerages in the world, but prides itself on providing full-service features to its clients.

Zecco (1-877-700-7862)

While Zecco is a relative newcomer to the brokerage game, their low prices have been quickly attracting investors. If you maintain an account balance above $25,000 or more than 25 trades per month, your first 10 buy trades are free each month.

TradeKing (1-877-495-5464)

Unlike other brokers, TradeKing’s $4.95 commissions include broker-assisted trades, which often cost near $50. If you’re new to the investing game, and want a broker to help guide you through your trading decisions, TradeKing is a smart choice.

Don’t Let Your Broker Make You Broker

Picking the right broker is incredibly important…it could mean the difference between making profits and missing an opportunity. While our list of brokers doesn’t cover every firm out there, it should at least help you differentiate among the more popular options out there.

Stay tuned to the Penny Sleuth over the next couple of weeks – we’ll continue to answer your reader questions…

Cheers,
Jonas Elmerraji

June 23, 2009

Post from: Penny Sleuth

Penny Sleuth’s 2009 Discount Broker Guide