In our ongoing update of penny stocks brokers we learned today that Interactive Brokers (I.B.), a firm we like for online trading, does not handle orders electronically past the third decimal point.

So, you can put orders in for a stock trading at $0.013, but the I.B. system would reject your order if you tried to put an order in for $0.0131. It only accepts prices for buying or selling stocks up to the third decimal place.

In our view this puts the I.B. system at a distinct disadvantage for trading penny stocks, where often times that fractional percentage can make the difference between a profit and a loss. Our guess is that the system would be even more ineffective for trading sub-pennies.

We also learned that I.B. routes all penny stock orders through Knight Securities (Market Maker Symbol: NITE). This is a huge market maker no doubt, but having only one market maker for routing might also be a disadvantage under certain circumstances. Furthermore, in our tests of the I.B. system today, we noticed that NITE would not represent our orders to buy stock on the bid nor to sell stock on the ask, another big disadvantage for those traders seeking to maximize profit-making situations.

A similar test of Scottrade’s system today showed NITE to instantly go on the bid or ask for our orders in three different penny stocks that we used as a test. NITE via Scottrade would also represent orders up to the fourth decimal place out. We liked that. We also liked Scottrade’s customer service.

While I.B. remains a good broker, we are downgrading it among our recommendations for brokerages good for trading penny stocks. We are also upgrading our rating of Scottrade.