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, 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.
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 cannot be held in custody at the Depository Trust Company (DTC) and, may carry significant pass-through charges that can be as high as 10 times the value of the trade itself. Non-DTC eligible securities, due to restrictions imposed by the Depository Trust Company, cannot 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).
Here are Investopedia’s top five online brokers for penny stock trading. Our criteria for putting a broker on this list includes access to the OTC markets, low account minimums, 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.
- Account Minimum: $0
- Fees: $0.005 per share
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.
Interactive Brokers also received awards for Best Overall Online Brokers, Best for International Trading, Best for Low Costs, Best for Options Trading and Best for Day Trading.
- Account Minimum: $500 ($5,000 for IRA)
- Fees: $5 stocks and ETFs, $0.50/contract and $5/trade options
The more shares you trade per month, the lower your fees at TradeStation. All data streams in real time. You can place, modify, and cancel trades from charts or by using keyboard shortcuts.
TradeStation also received awards for Best Overall Online Brokers and Best for Day Trading.
- Account Minimum: $500
- Fees: $3.00 per trade
eOption’s flat $3 per trade pricing can keep your costs down. Their low-cost, no-frills web platform offers speedy executions but few creature comforts. You can connect to their trading engine using Sterling Trader Pro or DAS Trader if you want better charting and analysis, though that will cost $230 monthly. Some OTCBB trades must be placed with a live broker, for an additional $6/trade fee.
eOption also received awards for Best for Low Costs.
- Account Minimum: $0
- Fees: $4.95 per stock/ETF, $4.95 plus $0.65/contract per options trade
Fidelity’s overall 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.
Fidelity also received awards for Best Overall Online Brokers, Best for Beginners, Best Stock Trading Apps, Best for ETFs, Best for Roth IRAs, Best for IRAs, Best for International Trading, and Best Web Trading Platforms.
- Account Minimum: $0
- Fees: $4.95 per stock and ETF trade, $0 for Schwab ETFs and $4.95 plus $0.65 per contract for options
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.
Charles Schwab also received awards for Best Overall Online Brokers, Best Web Trading Platforms, Best for International Trading, Best for Options, Best for Beginners, Best for Roth IRA, Best for IRA, Best for ETFs, and Best Stock Trading Apps.
Regarding the other brokers we surveyed, Robinhood and tastyworks do 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. Lightspeed charges a flat $10 per OTCBB transaction, which is much higher than average.
Investopedia’s mission is to provide 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.