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I’ve been a moderately satisfied brokerage customer at Zecco for almost 3 years. I was initially attracted to the broker for sole purpose: free trades.

At the end of last month, Zecco announced a significant change in their trading policy (emphasis mine):

“When Zecco Trading first launched in 2006, our focus was to deliver a good, solid service at a bare bones price. In the four and a half years since that launch however, our customers’ needs have evolved quite a bit. While investors today certainly value low commissions, they also demand a great trading service with a rich set of advanced features.

To better support this balance between offering remarkable value and continuing to deliver the innovative new technologies, tools and services that Zecco Trading customers require, we are modifying our commission structure. Starting on March 30, 2011, our new commission rates will be:

Equity trades: $4.95 per trade*

Options trades: $4.95 per trade, plus $0.65 per contract

With this change we are no longer offering 10 free trades per month. As before, there are no minimum balance requirements or inactivity fees to open or maintain a Zecco Trading account.”

While the new commission structure is reasonable, I’m disappointed in the news.

Broker History

I started out my investing career at Scottrade. For a discount broker, Scottrade had a nice interface, great customer support, and reasonable commissions.

However, with a small amount of starting capital, commissions – even $7 flat fee commissions – had a not-insignificant effect on the growth of my account balance.

While I consider myself a long-term investor, I am constantly adding capital to my brokerage account, meaning I’m often adding to positions every month.

In addition, after the first year, I started out getting into more special situations or workout investments. Scottrade, along with many other brokers, charges a “voluntary reorganization fee” for tenders or stock conversions.

The fee usually starts around $25, which can significantly cut into the profits for odd-lot tender offers.

So I shopped around for a new broker, and ended up with Zecco.

Zecco Experience

Support at Zecco could be much improved, especially with the email support option.

There is a reason why Zecco ranks very low in customer service surveys.

Phone support is much better, but I personally was transferred around to several departments before finding a knowledgable person around special transactions like a merger arb situation or going private transactions.

Let’s face it: Zecco had built up its business on the promise of free trades.

Over the years, the free trade aspect has been drastically modified:

  • From 40 free trades per month to 10 free trades per month
  • Then from a $2,500 min qualifying balance to a $25,000 min qualifying balance
  • And now to no free trades at all

The company has added additional community features and mobile options to its product mix, but as a (somewhat) sophisticated investor, the only thing I care about is the commission rate and order execution.

Time for a New Broker!

The latest change at Zecco removes the last remaining reason for continuing with their service. While it is a pain to switch, I’ll be making the move before the end of the month.

What I’m looking for in a broker:

  • Ability to trade penny stocks with little or no additional fee (a must)
  • Option to trade internationally at a reasonable cost (Canada & UK to start)
  • No ‘reorg charge’ or other fee for tender offers or other special situations
  • Execution speed and ease of buying illiquid securities

I probably make 5-10 trades per month (often because I’m building up a position in an illiquid security). I’d like to minimize my transaction costs and open up my stock trading universe.

Please leave a comment below or drop me an email with your broker suggestions.

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19 Responses so far

  1. Asif says:

    Adam, I have used Ameritrade for several years now and have been very happy with both their customer service and their execution. Because I signed up for a no-frills service called Ameritrade iZone a while ago that was priced at $5/trade, I continue to receive that rate through them. Their tools like ThinkOrSwim are great as well. I cannot however speak to their reorg fees as I don’t use them for merger arb situations.

    Friends I know have also used Wells Fargo’s free trades options, which requires a minimum $25,000 balance.

    • asues says:

      Asif,

      Although I didn’t include it in my broker history, I actually started out my investing career with TDAmeritrade. Is the iZone still available or just a legacy option for current account holders?

  2. eclecticvalue says:

    It seems interactive brokers fits most of your criteria. Also look through this website http://www.brokerage-review.com/ It is really informative.

    • asues says:

      IB is definitely in the running, although the $10/mth commission charge isn’t my favorite. Will check out the review site.

  3. David says:

    Dont go to td ameritrade. With certain illiquid stocks they make you call in to a live broker to place the trade. Be interested in other brokers stance on what they consider “penny” stocks.

    • asues says:

      I think a lot of brokers start charging additional fees for stocks under $1.00. With Zecco’s recent change, equity trades for stocks under $1 are $6.95, compared to $4.95 for all other equities.

      This obviously makes a big difference in my types of stocks.

      • Asif says:

        I don’t often buy stocks below $1 but on the couple of instances when I did (GLUU and TWER), I did not have to call a live broker. Maybe this only happens with illiquid stocks. Would love to hear, which broker you finally decide on. It is also great to see the active discussion on this post.

  4. Morgan says:

    Check out Sogotrade.com. It’s $3/trade for stocks over buck and has given me pretty decent customer service over the last 3 years or so. Penny stocks have a slightly different fee structure, but it is still cheap. I don’t know about international trading though.

    The low trading fees are great for me as a poor college kid even though I buy/sell rarely.

    Cheers!

  5. Hester says:

    Many brokers put huge fees on penny stocks, like IB. So their out for what you do. I suggest E*Trade, it’s what i use. Good international trading, no penny stock fees, bonds, etc… But they do have fees for reorgs and tenders, so they don’t have it all.

    My advice would be to focus less on the price of commissions per trade (except for the large extra fees like for penny stocks) and instead focus on who has the best execution. Etrade is good. Last week I had an order for 1000 shares for a stock (an illiquid one) at $8.50. I was surprised to find that Etrade filled me at 8.39. Many brokers likely would of pocketed that spread. Saved me 110 bucks, thats a lot of trades! And something that doesn’t show up until you trade.

    One thing about UK trading, most small net nets, or the kind of stocks that you’ll like, are traded on the AIM (alternative investment market). It’s kind of the pink sheets of britain. I’ve never found an online discount broker who let’s you buy UK stocks listed solely on the AIM. You may be familiar with Richard Beddard and his blog. Probably about 2/3rds of his thrifty 30 stocks can’t be bought through US discount brokers because of this. Some full service brokers allow you to trade these stocks. Just something to think about.

    -Hester

  6. Jeff says:

    I use WellsTrade (Wells Fargo) for most of my investing. You get 100 free trades per year as long as you maintain $25K in your account.

    https://www.wellsfargo.com/investing/styles/wt/

    Unfortunately they charge a $25 commission for stocks under $1.00 and don’t support international markets. I’m not sure about reorg charges.

    Interactive Brokers is interesting, and I’m considering an account. Yes, you must generate at least $10 in commissions each month, but you can trade in just about any international market. It looks like trading penny stocks could still be fairly expensive though, as they charge $0.005 per share. Also, IB doesn’t do automatic free dividend reinvestment, which is something I care about for certain of my positions.

    I’ll be interested to see what you settle on.

    • asues says:

      Jeff,

      I think that WellsTrade and BOA’s Merrill Edge are the last brokers offering free trades (both with a $25k balance). I checked into Merrill’s offering: No additional charge for penny stocks but they only offer US Markets. Would love to hear if someone uses the service already.

      IB is near the top of my list right now just because it does offer such a wide selection of markets, which I think will be a huge advantage going forward. It opens up a wide range of investments which could be significantly mis-priced.

      Ideally, I’d love to have an account at IB just for international trading and an account somewhere else for US markets, but unfortunately the $10/mth charge could rule out that plan.

      Hester,

      IB caps their commissions at 0.5% of the total transaction. So if I’m doing it correctly:

      10000 shares @ $0.10 = $1000 x .005 = $5, reasonable

      But 50000 @ $0.10 = $5000 x .005 = $25, ouch!

      My biggest challenge though is liquidity, so my 50000 share order is often broken up across many days or weeks. Under a flat fee system, I end up paying commission charges even if I pick up 500 shares at a time. So in that same 50k share example (with $7 flat commission as an example)

      Day 1 – 10k shares, $7
      Day 2 – 10k shares, $7
      Day 3 – 10k shares, $7
      etc.

      Which means it actually ends up more than the IB example. (Please check my math and understanding of this!)

      This liquidity problem is my biggest challenge right now, and hoping to find a broker that can minimize the headache through a combination of low fees and great execution.

      And you are right, a lot of the UK stocks I’ve highlighted seem to be on the AIM exchange. Need to dig into this further.

      Morgan,

      I’ve received several recommendations for Sogotrade. A quick look shows that penny stocks are charged $3 PLUS 0.5% of principal value. So it looks like IB’s structure but with a flat $3 fee on top.

      While I don’t focus exclusively on penny stocks, prob a 1/3 of my current positions are under or around $1 right now so it’s a big consideration.

      • Jeff says:

        The WellsTrade deal for free trades is much better than Merrill Edge. WellsTrade only requires that your account balance (including securities) be over $25K. Merrill Edge requires that you have $25K in *cash* in your accounts. So to qualify for Merrill Edge, you’re going to have to leave $25K of dead money sitting around (yeah, it can be in a CD or a savings account, but BOA’s rates are a joke).

        As a tightwad miser, I really don’t like the IB $10/mo fee requirement, but I think I’m going to bite the bullet and open an account there. $120 a year for broad access to international markets isn’t horrible, and could easily be recouped by a single good investment that I wouldn’t have otherwise been able to easily make.

        Based on the comments so far, it sounds like the mid-range brokers like E*Trade, Fidelity, or Ameritrade might actually be the best for penny stocks on U.S. exchanges. So I guess I’m looking at WellsTrade for non-penny stocks on U.S. exchanges, IB for international trading, and E*Trade/Fidelity/Ameritrade for penny stocks. A bit convoluted, but tolerable, I suppose.

  7. Cuong says:

    merrill edge – has 30 free trades per month provided that you keep $25K balance

  8. Ranajit says:

    Adam,
    I am not sure if you can get a single broker to meet all your requirements ( but please let us know if you do !). I use different brokers for different purposes.

    My primary broker is Tradeking but I use Fidelity for penny stocks. Fidelity has the same $7.95/transaction for all equity transactions irrespective of price. Although I am not sure if they would require you to call in for illiquid stocks.

    I am also planning to open an account with IB/Noble trading for international stocks but IB’s $10/month is making me think twice since I do not trade too often and I am not sure if I will generate $10 comm./month

    I am glad to see a nice discussion on brokers as this is what I have been looking for.

    Btw, does anyone here have experience with Noble and IB. I am trying to compare the two before I open an account with one?

  9. Hi,

    I have moved around many brokers (Foliofn, IZone, Ameritrade, Firstrade, Scottrade). I am currently happy at IB.

    Execution is simply superb. However, i have not dealt wit penny stocks or international stocks yet. Most of the times I have been at $1 per trade and then it pro-rates up if you buy say 300 shares.

    I had the same concern with the $10 min fee and it is at the back of my mind. I figured the execution and tools were worth that. Also, I have made it a habit to write a few covered calls to make that $10 for me or $120 a year :)

    Options are also cheap at $1 per contract.

    I can use the Iphone, browser and desktop application for trading. The desktop application is very feature rich. They have tools for merger arb (never used), options, rolling over options, covered call writing etc. It can create the orders for you based on selection.

    I personally love the rebalance tool that IB has. It shows me the portfolio with % weights for each holding. I can change the % for any or all or even add a new holding at a %, it will generate all the trades and execute them after I review. I like this a lot.

    The best part of IB for those may be considering managing multiple accounts is that you can split the commission across multiple accounts. So, recently i placed a trade for 100 shares across two accounts using the rebalance tool. I told the tool to make it 5% of each account. IB charged a total of $1 ($0.79 and $.21) for the two accounts based on the proportion of shares bought.

    Another advantage that Adam you may be overlooking is that you can ease into positions using multiple orders and pay only $1 an order ( for larger $ stocks) versus worrying about $7 each time you made a purchase. There are times when I have bought 100 shares daily for 10 days to build a position and not worry about commissions.

    My personal feeling is $120/ year is worth it. You will end up paying more at any brokerage. Ofcourse, the penny stock caveat exists. 0.5% per trade may pinch you if thats your main focus.

    In India, I pay almost 1% for trading and the brokerage I used was pathetic to say the least.

    • asues says:

      Ranajit,

      I’m slowly coming to the conclusion that I won’t be able to find a broker that meets every single requirement. I really like IB’s international options but I hear customer support is not the best and the trading system is pretty complicated. I’m very concerned about the $10/mth fee, as I could see a time in the future where I don’t make a trade for quite a long time – I’d hate to just sit around and eat that fee.

      Jeff,

      Ouch, I missed the fine print on the $25k in cash requirement for the Merrill Edge deal. That pretty much takes it off the table, no way I’m going to keep that much cash sitting around earning 0.5%!

      I like your 3-broker combination option that you described, but would be concerned about the logistics and record keeping. I already have a difficult enough time keeping track of everything in my spare time, I’d like to keep that aspect as easy as possible.

      I think I’m leaning towards a mid-level broker as a starting point, with at least the option to dip my toe into international markets. If I start seeing some really good bargains, I will then have the option of opening an account at an IB.

      Adib,

      Right now at least, I don’t have any competence with calls, options or anything else – pretty much stick to vanilla equities trades. However, you bring up a really good advantage of IB – the % based commission structure is a huge advantage when filling orders for illiquid stocks.

      I provided an example above, but one of my biggest challenge is filling a position over several days or weeks.

      Having an order fill for only a few shares and paying the flat fee is very annoying. I wish brokers would offer a minimum size lot fill option i.e. “Out of these 5000 penny stocks, only make the trade if you can fill at least 1000”

      Or maybe even have the option for each trade to be done on a flat fee or % basis. Wishful thinking I guess.

    • Ranajit says:

      Thanks Adib,

      I recently opened an account with IB based on your recommendation.

      Lets see how it works for me :-)

      • asues says:

        Ranajit,

        I have to make my decision in the next 2 weeks or so, would love to hear your experience with IB (transferring over your account, learning the new platform, overall experience, etc)

        Good luck!

  10. Simon says:

    Can anyone tell me how strong your ownership of securities is when you use a discount broker like say IB? Will you receive a statement with showing the number of securities owned and an individual identification number like a regular broker? Do you become an individual holder or are your securities pooled in a trust account with other holders and your ownership registered through your account with the discount broker?

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