Best brokerage firms for trading stocks under $1 (penny stocks) at no extra charge
Conventional wisdom says that buying stocks under $1 dollar is extremely risky and it’s a bad investment.
In most cases we agree. But in every rule there are exceptions.
CitiBank was basically a penny stock in March of 2009. Now its price fluctuates between $4-$6 per share (taking into consideration 10:1 reverse stock split)
and some analysts believe it will triple within next 2 years. It would have been silly not to buy, or, even worse,
sell Citibank in March of 2009 ONLY because of "I won’t allow penny stocks in my portfolio" rule.
So, in rare occasions, we want to be able to trade stocks under $1. There is one problem with this though:
many stock brokerage firms
are trying to overcharge investors for penny stocks.
The most common way brokerage companies do this is by putting a $0.01 or $0.05 surcharge on
each share of stock priced below $1. So if you buy 5,000 shares of penny stock and regular stock commission is $5,
this trade will cost you $5 + 5000*$0.01=$55! It’s a bit high, to say the least. Other brokerage houses
came up with less strict rule: surcharge (usually $0.01) on all shares above certain limit (2,000 or 5,000 shares
are common numbers). This is not as predatory, but it still makes trading penny stocks very expensive.
Fortunately, some of the
best rated brokerage houses
don’t overcharge their customers for trading stocks under a dollar or for large-size orders.