If you’re looking for a high-risk, high-reward play, penny stocks can be tempting. They generally trade under $5 per share but often have a price of a dollar or less. While some penny stocks trade on major exchanges, others trade over the counter.
Our ranking of the best online brokers for penny stocks assessed multiple trading platforms and considered myriad factors. We used OTC as a proxy for determining services for trading penny stocks.
Why trust our investing experts
Our team of experts evaluates many investing products and analyzes various data points to help you find the best product for your situation. We use a data-driven methodology to determine each rating. Advertisers do not influence our editorial content. You can read more about our methodology below.
- 18 brokerages reviewed.
- 50+ data points analyzed.
- 3-step editorial review.
- 5-step fact-checking process.
Our Partner
Robinhood
Via Robinhood's website
Account minimum
$0
Trading Commissions
$0 for stocks, ETFs and options
Best online brokers for penny stocks
- E*TRADE from Morgan Stanley: Best for OTC stock trading.
- Webull: Best mobile app.
- Fidelity: Best for trading costs.
- Charles Schwab: Best overall broker.
- Merrill Edge: Best for educational resources.
- Robinhood: Best for crypto trading.
- Interactive Brokers: Best for investment offerings.
- TradeStation: Best for active traders.
Best for OTC stock trading
E*TRADE from Morgan Stanley
Blueprint Rating
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
One of the earliest online brokers remains a good option for long-haul investing or stock and options trading. E*TRADE’s zero-commission stock, ETF and options trades are major draws. You can also earn up to $1,000 when funding a new brokerage account with E*TRADE. Terms apply.
E*TRADE’s extensive compendium of educational articles, videos, webinars and research will keep you busy.
If you’re more experienced, dive into the mesmerizing rabbit hole of Power E*TRADE. This platform has an array of tools to make any active trader drool. Features include technical pattern recognition and comprehensive screeners.
Pros and cons
Pros
- No minimum account requirements.
- No account inactivity or closure fees.
- Fractional share trading.
Cons
- No general email for customer support.
- No international stock trading.
- No forex trading.
Best mobile app
Webull
Blueprint Rating
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
You won’t get much hand-holding at Webull since it doesn’t offer advisory services. But it makes up for that if you’re comfortable being a DIY investor.
Its strongest feature is its trading app, which is available on mobile and desktop. You’ll find everything your active-trader heart desires inside. Keep a close eye on your top securities with a watchlist and corporate actions tab.
Webull offers a robo-advisor, called Smart Advisor, for the less adventurous. Its portfolios are crafted and managed by a team of 130 experts. All you need is $100 to get started. You can even try it out for free for six months. After that, the fee is 0.2% per year.
Pros and cons
Pros
- A strong trading app for desktop and mobile.
- Commission-free stock, ETF and options trading and no account minimum.
- Earn 5% APY on your uninvested cash.
Cons
- No advisory services.
- No mutual fund, forex or futures trading.
- Minimal research and educational support.
Best for trading costs
Fidelity
Blueprint Rating
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
Fidelity is the food court of online brokers with something for everyone. Like many top competitors, it offers zero-commission stock, ETF and options trades. Fidelity even created the first zero-expense ratio index mutual funds. That’s one of many reasons it tops the list as the best low-cost broker.
You can also buy fractional shares of stocks and ETFs on the Fidelity trading platform. That means you can start investing with as little as a dollar. Those who are adventurous can even buy bitcoin and ethereum.
Fidelity stands out for its commitment to investor education. The platform offers resources like courses, webinars, coaching services and extensive research.
Pros and cons
Pros
- Offers fractional shares and cryptocurrency trading.
- Offers comprehensive educational resources.
- No account minimums.
Cons
- No forex trading.
- No customer support via email.
- A high broker-assisted commission fee of $32.95.
Best overall broker
Charles Schwab
Blueprint Rating
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
Charles Schwab covers the gamut of everything you could want as an investor. Its features range from robo-advisor and cash management services to educational and research resources. It also boasts no account minimums or commissions for online trades of stocks, options, ETFs and Schwab mutual funds. You can even buy fractional shares of for only $5.
Schwab offers a web-based platform, a mobile app and its proprietary trading software StreetSmart Edge.
Pros and cons
Pros
- No minimum account requirements.
- Offers robo-advisory and professional advisory services.
- Offers mutual funds, bonds, futures, international stocks and fractional shares.
Cons
- Cryptocurrency trading only through funds.
- No email-based customer support.
- No “paper trading” simulator.
Best for educational resources
Merrill Edge
Blueprint Rating
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
Merrill Edge Self-Directed offers the usual $0 stock, ETF and options trades. There are no account fees for multiple account types. As a value-add, you get in-house research from Bank of America. You can also link existing Bank of America accounts for seamless transfers. Other notable features include a personalized dashboard and Idea Builder, which allows you to explore investing themes.
Pros and cons
Pros
- A seamless transition and experience for Bank of America clients.
- 24/7 customer service via phone.
- A wide range of educational and research resources.
Cons
- A $24.95 domestic and international wire transfer fee.
- A high broker-assisted commission fee of $29.95.
- No trade simulator.
Best for crypto trading
Robinhood
Blueprint Rating
Via Robinhood's website
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
Robinhood joins the ranks of many top online brokers with no commissions on stock, ETF and options trades. But it takes zero commissions one step further with no commissions on crypto trades. The platform claims to have the lowest cost to trade crypto on average. That means you could net up to 3.5% more crypto than with other platforms.
You can trade many of the most popular coins, including bitcoin, ethereum and dogecoin. The option to set up recurring buys on an automated schedule may make these the most straightforward investments of your life.
Crypto isn’t all Robinhood offers, though. You can also invest in more traditional products like stocks and ETFs. You can even trade after hours, with trading available 24 hours a day, five days a week. But you won’t find mutual funds here.
Pros and cons
Pros
- Commission-free stock, ETF, options and cryptocurrency trading.
- 24/5 trading.
- No account minimums.
Cons
- No robo- or traditional advisory services.
- No mutual funds or bonds.
- No forex trading.
Best for investment offerings
Interactive Brokers
Blueprint Rating
Via InteractiveBrokers' secure website
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
Interactive Brokers, known as IBKR by the cool kids, is a top pick for day traders. It offers a suite of award-winning trading platforms for desktop and mobile. There are options for every level of trader, from beginner to professional.
You can trade in more than 150 markets worldwide. And you can do it for as little as a dollar with fractional investing.
Trading pros should check out the company’s flagship IB Trader Workstation. It offers everything from charting and paper trading to research, news, market data and real-time monitoring.
Pros and cons
Pros
- Low margin interest rates.
- No account minimums.
- The broadest range of offerings, from bonds to international stocks.
Cons
- Lacks 24/7 customer service support.
- No in-house research.
- No advisory services.
Best for active traders
TradeStation
Blueprint Rating
Account minimum
$0
Commission-free stock, ETF and options trading
Yes
Why it’s the best
TradeStation is the place to be if you’re an active trader. The online broker has one of the best trading platforms in the industry. It’s paired with zero commissions on stocks, ETFs and options and no minimum to get started.
The trading platform lets you access the broker’s colossal database to backtest ideas before executing. You can also build custom strategies, watchlists, charts and more. It comes in desktop, web and mobile versions. There’s even an entire platform dedicated to trading futures.
TradeStation runs a blog with market research and insights. It also provides a library of resources to help you elevate your trading expertise. There’s something for every level of trader here, from new to experienced.
There’s a reason this broker has won so many awards. Active traders, look no further.
Pros and cons
Pros
- A sophisticated trading platform.
- No commissions on stocks, ETFs or options.
- A comprehensive education and research library.
Cons
- A $14.95 commission to trade mutual funds.
- Pricey commissions to trade individual bonds.
- Some features require an additional fee or subscription to access.
Compare the best online brokers for penny stocks
| BROKER | OTC STOCK FEE | OTC MINIMUM TRADE REQUIREMENT | ||||
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Methodology
Our team reviewed and researched some of the largest online brokers in the U.S. to rank the best for penny stocks.
We sent a digital survey with over 50 queries to each company we reviewed. Our researchers verified the survey data and confirmed missing points by contacting each company directly and via online research.
The brokers that made our list excelled in areas across several major categories. These are advisory services, education and research, insurance, features, trading costs, fees and account minimums, margin interest rate and interest on idle cash, and customer service.
We also considered various subcategories, combining them to get an overall score for each major category.
Data points were scored on a 0.00 to 1.00 scale. The top raw score was 0.76 and was curved to a five-star rating as the highest possible score.
Why other online brokers didn’t make the cut
Our methodology for assessing the best brokers for penny stocks assigned higher weights to certain factors, including trading costs, education and research, account minimums and fees, customer service, and features. These features are important in determining the best overall brokers. They can make or break a penny stock investing strategy.
Of particular importance are trading costs. Because penny stocks are often traded in high volumes, excessive commissions or surcharges can hurt your returns. Many brokerages charge special fees on penny stock trading. Finding a brokerage with a fee structure that aligns with your trading strategy is important.
Our ranking also assigned a decent weight to customer service. Given the intricacies of penny stock trading, investors need assurance that professional help is available. The best options offer 24/7 service through various channels.
Final verdict
E*TRADE scored the highest in our ranking thanks to its blend of accessibility, affordability and versatility. It offers volume discounts for OTC traders who execute at least 30 trades per quarter and generous incentives for new users. The broker also provides multiple ways to trade. These include E*TRADE web, Power E*TRADE web and two mobile apps.
Features of penny stock
Compared to the blue-chip stocks you might know, penny stocks operate in a different world. Here are some notable ways they stand apart:
- Higher volatility. Penny stocks are known for their rapid price swings. This can lead to large gains, but there’s also a risk of losing money quickly.
- Poorer liquidity. Unlike blue-chip stocks that trade frequently, penny stocks often have fewer buyers and sellers. This can make it harder for you to sell your shares quickly without affecting the price.
- Lower market cap. Penny stocks usually belong to smaller “microcap” companies with less than $300 million in market capitalization.
- OTC trading. While some penny stocks are listed on major exchanges like the Nasdaq, most trade over the counter. Trading OTC means fewer regulatory requirements but also less transparency and more risk than stocks on formal exchanges.
How to find the best online broker for penny stocks
Most penny stocks are traded over the counter rather than on standard exchanges. A broker that offers access to OTC markets is crucial.
Given the low price of penny stocks, commission costs can significantly impact profitability. Look for brokers with low or tiered commission rates, which benefit high-volume traders.
Effective order execution is vital in penny stock trading due to its higher volatility and lower liquidity. Brokers with strong order execution capabilities can help ensure trades are completed at the best prices.
Here are a few other considerations:
- Variety of order types. Access to various order types is important for implementing various trading strategies and managing risk.
- Customer support and education. Look for brokers that provide educational materials on penny stock strategies, market analysis and risk management.
- Account minimums and fees. Some brokers require a minimum account balance or charge additional fees to access certain markets, including OTC. Understanding these requirements and fees is important, as they can impact your trading budget and strategy.
- Trading platform quality. A trading platform’s user interface and overall quality are crucial, particularly for active traders.
Tips for trading penny stocks
For penny stocks, use limit orders instead of market orders. Low liquidity and high volatility can mean market orders execute at significantly different prices than intended. Limit orders allow you to control the maximum price you’re willing to pay or the minimum price you’re willing to accept.
The bid-ask spread of penny stocks can be wide. This means there’s a significant difference between what buyers bid and what sellers ask. A wider spread can make it harder to trade profitably. Additionally, low trading volume can increase risk, as buying or selling the stock quickly may be harder.
Penny stocks are often traded on different tiers of the OTC markets. These include OTC Pink, OTCQB and OTCQX. Stocks on OTC Pink have the least regulatory oversight and may involve higher risk. OTCQB and OTCQX have more stringent requirements and may be considered slightly safer. Understanding these differences can help you assess the risk level.
Be aware of the potential for fraud and manipulation in the penny stock market. Pump-and-dump schemes involve artificially inflating the stock price before selling off. “Short and distort” involves spreading negative rumors to drive a stock’s price down. Many penny stocks don’t have audited financials, making assessing the company’s financial health difficult.
Are penny stocks safe?
Penny stocks are generally considered unsafe for the average investor. The usual risks associated with equities — such as market, sector and company-specific risks — apply. But penny stocks have additional challenges that elevate their risk profile substantially.
A key concern with penny stocks is that many have unaudited financials. This lack of transparency makes it difficult for investors to make informed decisions.
Additionally, penny stocks are known for their high volatility. Their prices can swing dramatically over short periods, often based on speculation or limited information. This adds to the uncertainty and risk.
The lack of stringent listing requirements for penny stocks further contributes to their riskiness.
Should you invest in penny stocks?
Investing experts and regulatory bodies agree that penny stocks are high risk. The reward often isn’t commensurate with the potential losses.
The Financial Industry Regulatory Authority cautions that penny stocks are highly speculative. This means you should only invest money that you can afford to lose. Think of penny stocks as the stock market equivalent of a scratch-off lottery ticket.
They’re extremely volatile, which means their prices can soar or plummet quickly. They also have low liquidity, which means selling your shares without significantly affecting the price may be difficult.
Unlike large blue-chip stocks, some penny stocks aren’t registered with the Securities and Exchanges Commission, resulting in fewer filings and disclosures. This lack of transparency makes understanding what’s happening behind the scenes challenging.
Finally, beware of rampant fraud in the penny stock market. The classic pump-and-dump scheme is common.
Frequently asked questions (FAQs)
In investing, a risk is considered “worth it” if there are expectations of commensurate returns.
For example, you may choose to accept the higher risks of equity ownership versus bond ownership due to the higher potential rewards.
But penny stocks don’t typically provide this sort of compensated risk. Small-cap stocks can be screened for profitability and potential growth. Penny stocks, however, often lack the fundamentals that might justify their inherent risks.
Theoretically, buying penny stocks without a broker is possible by using direct stock purchase plans. You can buy shares directly from the issuing company via a transfer agent, bypassing the need for a brokerage account. But this method is impractical, as most penny stock companies don’t offer this option.
Penny stocks may not be a good idea for beginner investors due to the high risk. Many penny stocks, especially those that trade OTC, have poorly audited or unaudited financial statements.
Some penny stocks can also become the target of market manipulation, such as pump-and-dump and short-and-distort schemes. This combination of factors requires much market knowledge and research to navigate effectively.
The huge upside many investors associate with penny stocks can overshadow the disproportionately high risk. While there are success stories in the penny stock market, they are rare and widely publicized. This can create a misleading perception of easy profits.
The chances of losing some or all of your investment in penny stocks are significantly higher. So, yes, you can theoretically make money. But you may be more likely to lose money.
The upfront costs of trading penny stocks depend largely on the brokerage firm you use. Some brokers charge a tiered commission based on the volume of shares traded. This can benefit high-volume traders.
Others charge a per-share amount, which can add up quickly. Some brokerages charge a flat fee per trade, offering a more predictable cost structure.
In recent years, many brokerages have offered commission-free trades. This can be particularly appealing to penny stock traders.
Beyond the direct charges from brokerages, there are implicit costs of trading penny stocks. They aren’t billed to you directly but can affect your trading results. The most significant of these is the bid-ask spread.
