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What Is a Penny Stock Broker?

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Written by Timothy Sykes Reviewed by Friedrich Odermann Fact-checked by Ed Weinberg
Updated 5/9/2024 3 min read

You can see my favorite penny stock brokers HERE and all I can do is warn you about these bad brokers, but below is also a cool infographic that explains what a penny stock broker actually does:

what is a penny stock broker
© Millionaire Media, LLC

If you want to buy stocks, you can’t simply call a company and buy its shares. You must deal with a broker. A broker is a middleman who specializes in selling these shares. A broker can be an individual, a brokerage company, or an online platform. So what is a penny stockbroker?

A penny stock broker runs the account that you’ll use to log in and trade and is responsible for making sure that your shares are bought or sold after you place your orders.

Who can be a stockbroker?

Not just anyone can be a stockbroker. To become a stockbroker, one must pass two exams which are administered by the Financial Industry Regulatory Authority, Inc (FINRA): the Series 7 and the Series 63 exams.

Types of brokers

There are two key types of brokers: full-service brokers, who provide services such as investment advice and retirement planning, and discount brokers, who offer more limited services but charge much less.

How do you choose a penny stockbroker?

More Breaking News

Some stock brokers will try to charge you with hidden fees, including:

  • Mandatory Frequency of Trading
  • Annual Maintenance Fee
  • Charges Toward Withdrawal
  • Inactivity Fee
  • Minimum Brokerage Per Share Charges
  • Large Order Surcharges
  • Minimum Account Balance
  • Minimum Brokerage Per Order Charges
  • Surcharges For Low-Priced Stocks

Either be sure to read the fine print, or be sure to ask about these fees before you commit to a broker. It’s best to ask right away, rather than being unpleasantly surprised later on.

Other considerations when choosing a penny stock broker

In addition to price, consider these things before signing on with a broker:

  • Volume Restrictions
  • Research and Analysis Tools
  • Short Selling Restriction
  • Customer Service Phone support

Finally, don’t forget to ask around for reviews of particular brokers!

Do you have a penny stock broker?

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”