Best Broker for Penny Stocks

November 28, 2018 — 9:00 AM EST

According to the Securities and Exchange Commission (SEC), penny stocks are securities issued by small-cap or micro-cap companies that trade at less than $5 per share. Most penny stocks don’t trade on the major market exchanges, and instead trade over-the-counter (OTC) through the OTC Bulletin Board (OTCBB) and OTC Markets Group.

Penny stocks are generally 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. They’re also difficult to research and accurately value. Still, many investors like to trade to 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.

Of course, the opposite is also true, and the SEC reminds us that, “Investors in penny stocks should be prepared for the possibility that they may lose their whole investment, or an amount in excess of their investment if they purchased penny stocks on margin.”

While many brokers offer penny stocks, be aware that some add a surcharge to stocks that trade below a certain dollar level or volume restrictions that bump up the price for large orders.

Also, keep in mind that certain low-priced securities are not DTC-eligible and, therefore, carry significant pass-through charges that can be as high as 10 times the value of the trade (non-DTC eligible securities, due to restrictions imposed by the Depository Trust Company, can’t be cleared electronically). Major 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).

Interested in making penny stocks a part of your portfolio? Here are Investopedia’s top five online brokers for penny stock investing, listed in alphabetical order.

The Best Brokers for Penny Stocks

 

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  • $4.95 online trades
  • $0 account minimum
  • In-depth research
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Schwab has a good selection of penny stocks for a flat-rate $4.95 commission – with no surcharge – plus low margin rates. They also offer a Satisfaction Guarantee: If you’re not completely satisfied, Schwab will refund your fee or commission and work with you to “make things right.”

All customers can use any of Schwab’s platforms for free, regardless of account size or trading activity. Choose from web-based, pro-level and mobile trading platforms to research, buy and sell penny stocks (and other investments).

✓  Pros

 

❌  Cons

•  Good selection of penny stocks   •  Educational content is limited and not as well organized as that of competitors
•  Comprehensive analysis from Schwab and third-party independent providers   •  Unlike many of its competitors, Schwab doesn’t offer social sentiment or discussions
•  Website, desktop, and mobile platforms automatically sync   •  Mobile quotes require manual refreshing
•  Excellent customer service with live support 24/7    

 

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  • $4.95 online trades
  • $0 account minimum
  • 20+ third-party research providers
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Fidelity offers penny stocks with a flat-rate $4.95 commission and no surcharges. Before you place a penny stock trade for more than 10,000 shares, you’ll need to contact a Fidelity associate to confirm you understand the risks involved (this is a one-time verification process). 

Fidelity has a reputation for offering excellent research from more than 20 third-party providers, including Ned Davis, Thomson Reuters, McLean Capital Management and Recognia. In addition, a well-designed stock screener lets you filter results by dozens of criteria – including an exact price range and the exchange where it’s traded. Click on any ticker symbol for an in-depth view of the company.

✓  Pros

 

❌  Cons

•  Good selection of penny stocks   •  Must make 36+ trades per year to use pro-level platform
•  Outstanding in-house and third-party research   •  Some research available only to clients who meet certain criteria
•  Stock screener can search for penny stocks that trade on OTC exchanges    
•  User-friendly mobile app    

 

See Interactive Brokers Full Review

  • $0.005 per share
  • $10,000 account minimum
  • Excellent order execution

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InteractiveBrokers, or “IB” as it’s commonly called, is popular with active traders due to its low commissions and margin (financing) rates. There’s no surcharge for penny stocks, and you’ll pay $0.005 per share, with a $1 minimum and 1% of trade value maximum. IB also offers volume-tiered pricing, which brings down costs if you trade more than 300,000 shares per month. IB has no technology, software, platform or reporting fees.

IB is known for its trade execution. Some brokers either trade against your orders or sell them to other firms to execute. This practice can result in poor price execution – which can end up costing you more than the commission you pay. IB’s SmartRouting continuously searches and reroutes your order to the best price available at the time of your order.

✓  Pros

 

❌  Cons

•  Low costs   •  Platform has a steep learning curve and week technical charting
•  Volume-tiered pricing for active traders   •  Limited customer service hours
•  SmartRouting trade execution    
•  No technology, software, platform or reporting fees    
•  Advanced order types    

 

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  • $6.95 online trades
  • $0 account minimum
  • Choose from two trade platforms

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TD Ameritrade offers $6.95 flat-rate commissions with no surcharge for penny stocks. The company has been in business for more than 40 years and has earned industry recognition for its trading platforms, investment offerings and trading tools.

TD Ameritrade customers have free access to all its trading platforms, including the pro-level thinkorswim platform and two mobile apps. Customers have access to a good selection of educational content, including articles, videos and in-person events at one of 364 branch locations throughout the U.S.

✓  Pros

 

❌  Cons

 
•  Good selection of penny stocks   •  Higher than average stock commissions  
•  Free access to all trading platforms, real-time streaming quotes and Level II quotes   •  Above average margin rates at most dollar levels  
•  Powerful suite of research tools   •  Two mobile apps – one for casual investors and one for active traders – can be confusing  
•  Well-organized educational content      
•  Social Signals and advanced charting and order entry      
       

 

See TradeStation Full Review

  • $5.00 online trades (high volume and liquidity rebates available for qualified traders)
  • $500 account minimum
  • Robust, pro-level trading platform

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TradeStation offers $5 flat-rate commissions with no surcharge for penny stocks. There are no software fees (a relatively new feature), and you get free premium tools and free real-time data (non-professional subscribers only). You have the option to choose per-share pricing starting at one cent per share, or unbundled pricing, which can cut costs to as low as $0.002 per share with the ability to participate in liquidity rebates. These plans can be a better deal than the flat-rate commission depending on your trading frequency and volume.

In addition to reasonable costs, TradeStation’s robust, pro-level trading platform stands above the competition, with advanced charting, multiple trade interfaces and plenty of tools for both technical and fundamental traders. If you want to design your own custom indicator, study or strategy, you can try your hand at programming in TradeStation’s proprietary EasyLanguage or hire an EasyLanguage specialist to do the coding for you.

✓  Pros

 

❌  Cons

•  Low cost flat-rate, per-share and unbundled pricing   •  Pro-level platform can be intimidating at first
•  Premium tools and real-time data   •  Watch lists don’t sync across devices
•  Robust, fully-customizable platform with advanced charting and analysis   •  The language used to develop trading systems is difficult to learn
•  Ability to code your own trading ideas (either by yourself or with a programmer)    
•  In-person and web-based learning opportunities