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.

TD Ameritrade

  • Stocks/ETFs: $6.95 per trade
  • Options: $6.95 + $0.75 per contract
  • No-load mutual funds: $49.99
  • Treasuries at auction: $25
  • All other bonds and CMOs, CDs: on a net yield basis
  • Futures: $2.25 per contract (plus exchange & regulatory fees)
  • Forex: Non-commission currency pairs trade in increments of 10,000 units (and do not contain a "#" symbol suffix). There are no additional fees or charges.

TD Ameritrade Advantages

  • No account fees or trade surcharges
  • Access to an online trader community
  • Free streaming quotes
  • Local branches
  • Free automatic reinvestment of dividends
  • Fee-free retirement accounts
  • Flat-rate commissions, no hidden fees
  • Virtual trading
  • Award winning trading tools

TD Ameritrade Disadvantages

  • Higher than average commissions on options trading and some mutual funds

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  • Stocks and ETFs flat-rate plan: $5 per trade ($4 per trade for IRA accounts)
  • Stocks and ETFs per-share plan: $0.01 per share first 500 shares, $0.006 per share after that; $1.00 minimum per trade
  • Options: $5 + $0.50 per contract ($4 + $0.30 per contract for IRA accounts)
  • Futures: from $1.20 (1 to 300 monthly contracts) to $0.25 (20,000+ monthly contracts) per side, per contract + exchange, regulatory & overnight fees
  • Mutual funds: $14.95
  • Bonds: $14.95 + $5 per bond
  • T-Bills: $50

TradeStation Advantages

  • Very low commissions, especially with per-share plan
  • Best direct-access trading platform
  • Fantastic charting tools
  • Trading modeling functionality
  • Virtual trading account
  • Large selection of investment products
  • Active online trader community

TradeStation Disadvantages

  • $50 annual fee if client makes less than 5 trades and average account balance is less than $2,000
  • Difficult to learn the trading platform
  • Minimum opening deposit is steep: $5,000 for non-day traders and $30,000 for day traders

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This article was updated on 3/28/2017.

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