Say you buy 500 shares of a $1 stock. Then six months later, it jumps to $2, so you decide to sell. That’s a quick double, right? Not really. In fact, your total gains could be anywhere between 88–98%.

The difference depends on how much commission you had to pay to make each trade.

But not all brokers charge the same commissions. And shopping for the best deal can have a big impact on your bottom line. For small-cap stock investors, a good broker is an absolute must.

Choosing wisely can be the difference between making 30% a year and barely breaking even. Luckily, there have never been more options for investors. Please remember, this guide is for information purposes only. We do not favor one broker over another, and it’s up to you to decide which one meets your needs.

Don’t simply choose the one with the lowest price — also consider how frequently you plan on trading…how much independent research you’d like access to…and even how much trading assistance you think you’ll need. You might discover it’s worth paying a little more.

Finally, remember that prices and other data are subject to change. So make sure to check before you sign up with any broker…

1) TD AMERITRADE charges $9.99 for all market or limit trades made over the Internet. There is no extra charge to trade or invest in OTCBB stocks.

There is no minimum account balance, but in order to be eligible for most promotions, you must have at least $1,000 in your account. There are no quarterly or monthly fees.

To open an account with TD AMERITRADE, call (800) 454-9272. The Internet address is www.tdameritrade.com.

2) Fidelity charges $19.95 for both market and limit orders (including all penny stocks) for its most basic level. You need an opening balance of $2,500 to open an online account. But once you do, there is no quarterly or annual fee.

Fidelity offers a lot of research capabilities and is marketed for the more serious investor (with a higher net worth) who likes the bells and whistles of a full-service broker but the price and convenience of a discount broker.

You can call Fidelity at (800) 544-6666 or go online at www.fidelity.com.

3) E*TRADE has a sliding scale of fees. If your assets are less than $50,000 and you make fewer than 30 trades per quarter, it charges $12.99 per trade. This applies to all stocks, including all penny and OTCBB stocks.

You need a minimum of $1,000 to open an account. There is a high-volume version of the account called Power E*TRADE, for those who make 10 or more trades per month, with reduced fees and expanded services.

There is no fee for using E*TRADE’s services as long as you make at least one trade per quarter or have a balance of at least $10,000. E*TRADE is a cheap online broker mainly for active traders who don’t need a lot of handholding.

E*TRADE’s phone number is (800) 387-2331, and its Web address is www.etrade.com.

4) Charles Schwab was the first discount broker on the market, and revolutionized the way trading was done. While Charles Schwab may have been the pioneer in the discount broker world, it’s no longer the cheapest. It charges $19.95 for market and limit orders, and an additional $0.015 for all shares over 1,000.

To open an account with Schwab, you need a minimum of $2,500. Frequent trading or keeping up the balance will prevent a $40 quarterly fee.

If you want to find out more about Charles Schwab, you can call (866) 232-9890 or (866) 855-9102 or go online at www.schwab.com or www.charlesschwab.com.

5) Scottrade is one of the cheapest online brokers you will find. It charges $7 for both market and limit orders. There are no minimum balances and no quarterly or annual fees. So even if you are an inactive investor, you won’t be penalized for “not trading.” The only drawback for penny stock investors is this…

For stocks priced under $1, Scottrade charges an additional fee of 0.5% of the total principal in addition to the $7 flat commission. So if you spend $500, you owe Scottrade an additional $2.50 added on to that $7 commission — making your total commission come to $9.50.

Scottrade’s phone number is (800) 619-7283, and its Web address is www.scottrade.com.

The above is not meant to be a comprehensive list, below is the contact information for some other popular discount brokers:

ChoiceTrade can be contacted by phone at (877) 731-9114 or online at http://www.choicetrade.com.

Firstrade can be contacted by phone at (800) 869-8800 or online at www.firstrade.com.

Interactive Brokers can be contacted by phone at (877) 442-2757 or online at www.interactivebrokers.com.

LowTrades can be contacted by phone at (800) 597-8767 or online at www.lowtrades.com.

MB Trading can be contacted by phone at (866) 628-3001 or online at www.mbtrading.com.

OptionsXpress can be contacted by phone at (888) 280-8020 or online at www.optionsxpress.com.

PennTrade can be contacted by phone at (800) 953-2860 or online at www.penntrade.com.

ShareBuilder from ING can be contacted by phone at (800) 747-2537 or online at www.sharebuilder.com.

Trading Direct can be contacted be phone at (800) 925-8566 or online at www.tradingdirect.com.

Wang Investment can be contacted by phone at (800) 353-9264 or online at www.wangvest.com.

Zecco Trading can be contacted by phone at (877) 700-7862 or only at www.zecco.com.

Don’t hesitate to call up any of these brokers if you have any questions. It pays to know all the details before signing up.

Sincerely,
Jim Nelson
November 10, 2008

Best Discount Brokers for Penny Stock Investors was originally featured in the Penny Sleuth.