One of the more common emails we get asks about the best brokers for trading penny stocks and we thought we’d take a quick moment and give you our take on it. We also wanted to update everyone on the status of an upcoming pick we’re working on but more on that later.

The truth is no broker is perfect. We’ve had good luck with TD Ameritrade, Interactive Brokers, Scottrade and E-Trade. Some of you who are just starting out always want to know which brokers open an account with no minimum requirements and until recently we would have recommended several in this category, including First Trade, Trading Direct, 
Lowtrades, and Choicetrade.

But things change and of the brokers with no minimum requirements the only one we now recommend is Lowtrades and this has to do with the clearing firms that settle stock transactions for these brokers. See, in recent months the stock clearing firm Penson Financial Services has implemented new rules that make it more difficult to trade penny stocks including an “illiquidity” rule which applies fees to thinly traded penny stocks or in some cases simply disallows trading of certain stocks altogether. First Trade, Trading Direct and Choice Trade all clear through Penson and no longer provide good platforms due to the new Penson fee structure. Lowtrades clears through Legent a completely different firm.

If you have a brokerage firm that clears through Penson you aught to be looking for a new broker lickety split. And if you’re looking to open a new brokerage account avoid any that clear through Penson. Some of the brokers that clear through Penson include, Choice Trade, Trading Direct, Zecco, TradeKing, MB Trading, Lightspeed, Mytrack, BMA Securities, eOption, OptionsHouse, FirstTrade, Cobra Trading, OC Securties, Trading Block.com (formerly AOS), WR Hambrecht & CO, Investrade, Market Trade, JH Darbie & Co. among others. Steer away.

The transferring of a brokerage account to another firm is usually done through a process known as ACAT and normally takes 1-2 weeks.

Which brokers do we recommend for trading penny stocks now? We like firms that are self-clearing, meaning they do not have to go through an outside clearing firm, such as Penson, or one separate from their own company. These brokerages include TD Ameritrade, Interactive Brokers, E-Trade and Scottrade. All of these firms have solid online platforms and relatively inexpensive commissions and we recommend all of them, roughly in the order of preference listed. Let us know how you feel about your broker and if you’re in love with them, perhaps we can add them to our list of brokers other readers should check out.

On a separate note, some readers have been asking our thoughts about the brokerage Suretrader especially after Tim Sykes recommended them on his site. Suretrader looks good, especially if you want to have a go at shorting penny stocks. Their fees are reasonable and their service, based on our phone call to them today, is right on the money.

Two things to keep in mind if you decide to give Suretrader a try:
1. The company is based outside the U.S. so many of the regulations and laws that might protect you and your money in the U.S. might not be available. This may not be a concern to you and it’s certainly not a concern non-U.S. citizens that often have problems getting accounts in the United States.

2. Suretrader can only accept cash wires and not stock. So if you wanted to move an account say from the U.S. via ACAT or DTC shares electronically into Suretrader or deposit stock certificates or in any other way move stock into the Suretrader you would not be able to do so. Only money in. Only money out. That limits it in our view but this may not be important to you. Other than that, we think Suretrader looks OK.

Now about the upcoming stock pick: based on our preliminary research we think this stock has the potential to rock your world. We have an appointment to visit the company late next week and meet management face to face. Assuming all looks as good in person as it does on paper we’ll be going with this pick which has a low float, trades at about $0.02 and we think has the potential to go up perhaps 10 times, maybe more than that. We’re excited but realistically we’re still perhaps two weeks out before being able to mention this penny stock. We wanted to keep you posted as to what we are doing over here.

That’s about it for now. Hoping you’re having an awesome week and we’re glad to have you with us.

Jeff Mirkin
Admin
DamnGoodPennyPicks.com