Penny stocks are considered highly speculative (and high risk) investments due to their lack of liquidity, large bid-ask spreads, small capitalization and limited filing and regulatory standards. Still, some investors like to trade penny stocks because the low price makes it possible to hold thousands of shares for a relatively small amount of capital – and all those shares mean investors can profit with the gain of just a few cents per share.
Low-priced securities cannot be held in custody at the Depository Trust Company (DTC) and, may carry pass-through charges that can be as high as 10 times the value of the trade itself. Non-DTC eligible securities cannot be cleared electronically. Exchanges such as NYSE and Nasdaq require DTC-eligibility, but it’s up to you to determine the eligibility of penny stocks trading on the OTC Bulletin Board and OTC Markets Group (a current list can be found on the DTCC website).
Our criteria for putting a broker on this list include access to the OTC markets, low account minimums, $0 or flat rate per-trade commissions with no additional charge for low-cost stocks. We also look for real-time margin calculations so you're aware of your buying power.
While many brokers offer penny stocks, some add a surcharge to stocks that trade below a certain dollar level or volume restrictions that bump up the price for large orders. Many brokers are charging commissions for trading penny stocks in spite of cutting commissions to $0 on exchange-traded stocks and ETFs.
Best for Penny Stocks
Our list of the top five brokers for penny stocks:
- Interactive Brokers
- Charles Schwab
- Fidelity Investments
- TradeStation
- tastyworks
Interactive Brokers
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- Account Minimum: $0
- Fees: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
Interactive Brokers' very low per-share trading commission of $.005 ($1 minimum per trade) and up-to-the-split-second real-time margin calculations are ideal for penny stock traders. IBKR Lite clients can trade penny stocks for $0.
Pros
Low commissions, maximum 1% of trade value for IBKR Pro, $0 for IBKR Lite
Streaming real-time data, including account information
IBot, IB’s AI-powered online assistant, can help find features
Cons
Data streams on only one device at a time
Traders Workstation puts up a steep learning curve
IBKR Pro customers are charged fees to trade, though they are low
Charles Schwab
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- Account Minimum: $0
- Fees: Free stock, ETF trading, $0.65 per options contract
Schwab's research pages point out the exchange on which a stock trades, which will keep you informed of the inherent risk. There are a variety of platforms available; the StreetSmart platforms have customizable charting and streaming real-time quotes. Schwab does not charge trading commissions on all stocks (including penny stocks) and ETFs.
Pros
Excellent screeners available on StreetSmart Edge
Free access to a wide array of news feeds
Customization and personalization options on StreetSmart Edge are terrific
Cons
The sheer number of features and reports available can feel overwhelming
Schwab maintains transaction history for just 24 months online
Schwab does not sweep uninvested cash into a money market fund
Fidelity Investments
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- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trade
Fidelity's excellent research can help you screen for penny stocks by market sector. Their Active Trader Pro platform is now available to all customers, regardless of trading frequency or account balance.
Pros
Access to Active Trader Pro for all customers
Excellent trade executions on listed stocks
Stock screeners help you find potential trades
Cons
Non-U.S. citizens and residents cannot open an account
Finding a tool may require using more than one platform
Data must be manually refreshed on the website
TradeStation
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- Account Minimum: $2,000 for TS Select and $0 for TSgo
- Fees: $0 stocks and ETFs, $0.60/contract and $0/trade options on TS Select, $0.50/contract and $0/trade
TradeStation offers a service called TSgo that allows users to trade penny stocks (indeed, all equities) commission-free on their web platform or mobile apps. All data streams in real-time. You can place, modify, and cancel trades from charts or by using keyboard shortcuts.
Pros
Flexible and customizable real-time market scanners
Excellent charting and technical analysis capabilities
Per-share fees drop as you trade more shares
Cons
Steep learning curve for setting up trading strategies
Multiple pricing plans offered may be confusing
TSgo customers who place trades on the powerful TradeStation desktop platform pay a $10 surcharge
Regarding the other brokers we surveyed, Robinhood does not allow OTCBB trades. Ally Invest and SogoTrade apply surcharges to trades of stocks of under $1 per share, which can significantly add to your trading costs.
Interested in making penny stocks a part of your portfolio? Check out our guide to trading penny stocks before you jump in.
Methodology
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of six months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on their platforms, costs and fees, security, the mobile experience and customer service. We established a rating scale based on our criteria, collecting over 3,000 data points that we weighed into our star scoring system.
In addition, every broker we surveyed was required to fill out a 320-point survey about all aspects of their platform that we used in our testing. Many of the online brokers we evaluated provided us with in-person demonstrations of their platforms at our offices.
Our team of industry experts, led by Theresa W. Carey, conducted our reviews and developed this best-in-industry methodology for ranking online investing platforms for users at all levels. Click here to read our full methodology.