If you are looking to trade penny stocks, then you need to make sure you choose the right broker. Penny stocks are different than regular stocks in that they are highly volatile. This is a very important factor in deciding what broker to use. The other factor is that penny stocks are, like the name implies, very inexpensive. Let’s take a look at why these two factors are important in deciding what broker to use.
Time is of the Essence
The first thing you want to do is make sure the broker will execute your trades quickly, meaning that your buy or sell order will be put through almost instantly. Some brokers have a long lag time. With these brokers, you could place an order and wait several hours for it to go through. Time really doesn’t matter when buying blue chip stocks like Coca-Cola or Procter & Gamble because they don’t fluctuate in value as much as a penny stock. Time is important in penny stocks.
When interested in a penny stock, you want your broker to buy it or sell it immediately. Stocks for big companies are usually bought for the long term. It doesn’t matter if your trade goes through right away because those stocks are unlikely to go up or down in one day. Coca-Cola won’t double in value in a single day. This is not true for penny stocks. It is a very real possibility that a penny stock will double in price in a single trading session.
Make sure that you choose a broker that can execute trades quickly. This means choosing a well-known online broker. The large brokerage houses have more power than the smaller ones and are usually more adept at getting orders filled.
Find a Reasonable Price
The second issue is price. When you buy penny stocks, you are dealing with very small price points. The stock could rise 50% in value, but that might not translate to a large dollar amount. This is why you want to choose an online broker who doesn’t charge a big commission. You should look for online brokers geared for investors who do frequent trades because those who make frequent trades want to avoid high commission charges. Some online brokers will charge you close to $20 for a trade while others will charge you less than $6. It makes sense to choose the broker who charges less.
Online brokers are cheaper than local brokers. If you choose an online broker, you will often times have the option of using a phone-assisted trading. This usually cost twice as much as the basic online option and is an added expense you should avoid.
You should look for an online broker that offers you inexpensive trades and fast results. The extras, such as phone assisted trades and free stock charts, are all unnecessary. The most important things to look for are speed and cost.
