Discount Broker - Penny Stock Friendly
In your search for that ultimate penny stock broker, we learned earlier that the full-service broker is not something you require nor is it desired because:
Considering these negatives of full-service brokers, the penny stock broker's search for that penny stock friendly broker that is best for her/him must be found in the discount broker.
Even so, only some discount-brokers are truly penny stock friendly. To screen for the best, we must determine those conditions that are disadvantages of most such brokers.
Disadvantages of some discount brokers to watch out for in your search for a penny stock friendly broker
One disadvantage, in particular, is the opening account balance requirements. Account balance requirements can be as high as $20,000 especially for deep discount brokers.
When looking for a penny stock friendly discount broker, other disadvantages you want to screen for and avoid are as follows:
The extra charges for penny stocks will mean that you pay extra fees far beyond the advertised broker fees.
You could end up paying way over $600 per trade, instead of an advertised $4.00 per trade, simply because you are trading penny stocks.
How is that possible? Because many discount brokers will charge around $.004 to $.01 per share traded for:
That fee is usually in addition to the advertised basic broker commission per trade.
Consider the fact that a typical penny stock trader can easily trade 50,000 shares of a penny stock at about 10 cents per share or even less.
50,000 shares X 10 cent share price = $5000 for the entire 50,000 share trade.
Consider a $.005 per share extra fee of many such brokers on penny stocks
50,000 shares X $.005 per share broker charge = $250 in charges! That is a lot of potential profits down the drain per trade.
Let's say you found a super penny stock that was trading under 3 cents per share. Let's say you bought 200,000 shares at 3 cents per share... that equals only $6000 in value for that trade order.
Now if the broker charges you $.005 per share, you are already paying that broker in potential profits a whopping $1000 in fees!
Thankfully not all brokers charge these outrageous fees. With a penny stock friendly broker, you would pay only $2.50 to $10 per trade commission - Flat. No extra fees.
That means you could even trade 50,000 shares, or even 500,000 shares or more, and still pay the flat $2.50 to $10 per trade. The flat rate per trade commission charged depends on the broker.
Obviously then, as a penny stock trader, you want to find a decent broker that does not have these extra charges for trading penny stocks, or that expects you to open an account with $10,000 or more.
What you are searching for is the Penny Stock Friendly Broker. That is the Journey you are presently taking. And this is a very serious Journey as you might well imagine.
You have completed this lesson on:
The next lesson concentrates on that aspect of discount brokers that may seem most scary for many traders - to search for and trade penny stocks without broker guidance. This is called Self-Directed Trading.
When you are ready, please continue onto the next lesson: