Brokers for Penny Stocks

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Contributor, Benzinga
Updated: May 24, 2022

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Retail investors have the opportunity to invest in all types of markets, including penny stocks. Penny stocks are shares that trade below $5 and can be valued as low as a few pennies per share. They allow investors to hold thousands of shares for a small amount of capital, but while that may sound attractive, these stocks can be considered high risk. 

Many penny stocks are traded over the counter (OTC) as they do not meet specific requirements for major stock exchanges. With the lack of regulatory requirements and increased risk, finding the right penny stock broker is crucial.

Brokers for Penny Stocks

Best Penny Stock Brokers

It can be challenging to find the right stockbrokers. Here is a list of Benzinga’s favorite brokers and information about what they offer.

Webull

Webull’s platform offers up to 4x day-trade buying power and 2x overnight buying power with a margin account. With technical indicators, economic calendars and ratings, the platform is designed for intermediate and experienced traders. It charges an annual margin rate from 6.99% to 3.99% and requires no minimum deposit. Webull does not charge commission fees.

  • Webull
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    Intermediate Traders and Investors
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E*TRADE

E*Trade is a great platform that charges $0 in fees when purchasing stocks. However, if you wish to use broker-assisted trades, you may be charged an additional $25 plus any commission and fees. In the case of trading OTC stocks, a $6.95 commission applies, which is competitive. In addition, E*TRADE also offers educational resources to help develop your trading.

  • ETrade
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    Desktop Trading
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eToro

  • eToro Stocks
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    Copy Trading
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    Benzinga is compensated if you access certain of the products or services offered by eToro USA LLC and/or eToro USA Securities Inc. Any testimonials contained in this communication may not be representative of the experience of other eToro customers and such testimonials are not guarantees of future performance or success.

eToro allows you to invest in cryptocurrencies and ETFs, but it’s also a great place to invest in stocks. While you are adding stocks to your portfolio, you can be sure that your net worth is growing and you are building wealth for the future.

While penny stocks will not make you rich all on their own, it helps to use a platform that helps you create a more diverse portfolio. eToro also allows you to:

  • Invest in full stocks or fractionals for as little as $10–perfect for penny stocks
  • Engage with experienced, real investors regarding strategies
  • Mix your crypto holdings with stocks and ETFs
  • Review detailed charts, indicators and analyses
  • Pay zero commissions

Robinhood

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    Beginners
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Robinhood Markets Inc. (NASDAQ: HOOD) is a well-known broker championed by many retail customers. The commission-free broker is designed for new traders, while its online app is designed primarily to be easy to use. The downside of Robinhood is that it does not offer OTC stocks. The only penny stocks provided are those listed on the Nasdaq or NYSE.

Interactive Brokers

  • IBKR Stocks & ETFs
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    Stocks & ETFs
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Interactive Brokers is another well-recognized platform that can be beneficial for trading penny stocks. However, before you can trade these stocks, you must request penny stock trading permission via the platform. In addition, the firm charges a low commission for trading penny stocks.

Tradier

  • Tradier
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    Inexpensive Options Trading
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The Tradier platform has a plethora of information and tools for traders to use. It offers commission-free equity trading, although it has a subscription fee of $10 per month. With a range of indicators and charting tools, it is highly beneficial for active traders.

Cobra Trading

  • Cobra Trading
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    Short Selling over $25K
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Cobra Trading, a direct access broker, is an excellent platform for trading penny stocks, including OTC stocks. Fees are low, and it offers discounts for high-volume traders. However, all trades are charged a $1 minimum commission. 

TD Ameritrade

  • TD Ameritrade
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    Options Trading
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TD Ameritrade is a great online trading platform that includes the purchase of penny stocks. The company is commission-free with no platform fees, no data fees and no trade minimums. For OTC Bulletin Board (OTCBB) stocks, there is a $6.95 per trade fee. TD Ameritrade has a user-friendly website that is easy to navigate.

Tradestation

  • TradeStation – Online Broker – ONL-TRA-INVE-2737
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    Futures Trading
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Tradestation does not charge a fee for stocks or penny stock trading, but this benefit only applies to the first 10,000 shares per trade. Both of its mobile apps offer commission-free penny stock trading. In addition, depending on the account you set up, there is a minimum deposit for its TS Select account of $2,000.

Charles Schwab

  • Charles Schwab
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    Fund Investing
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Charles Schwab Corp. (NYSE: SCHW) offers penny stocks from its standard trading accounts. In addition, you can trade OTCBB and pink sheet securities online through the company’s website or mobile app. It charges $4.95 per trade and sets a $0 to $25 broker-assisted service charge. It forms an excellent option for traders at all skill levels. 

Why Do You Need a Penny Stock Broker?

The importance of a good broker cannot be underestimated — finding one that is safe and reliable is vital. Unfortunately, penny stocks must satisfy a list of requirements to join major exchanges, and, therefore, most are traded OTC. 

Fee structures and commissions will vary depending on the broker you choose, and because of the low liquidity of penny stocks, bid-ask spreads will also be determined by the different brokers and stocks. Therefore, it is vital you make sure the broker is regulated and suits your requirements. In addition, some penny stock brokers offer additional benefits and education that can be useful for everyone. An important point to note is that you must research the broker beforehand.

How Do You Choose a Penny Stock Broker?

Choosing a penny stock broker can be a long process because of the vast choice of brokers on offer. However, the steps below can help you speed the process.

Select a broker.

Different brokers have varying requirements when it comes to signing up, depositing and withdrawing. The assets it allows you to trade also vary. As penny stocks are usually traded OTC, check if the broker offers the stocks you are interested in. 

Most importantly, ensure that the broker is regulated in your region.

Research fees

When buying or selling stocks, there may be fees. Even if the broker says it is commission-free, other costs might be associated with using the broker, so investigate potential hidden charges. If the broker does charge a commission, it can impact potential profits, so take them into consideration as well. Flat fees are much better when purchasing a large amount of shares as this is set at a fixed price and does not depend on the amount you buy, which can impact your bottom line if you trade large positions.

Furthermore, spreads can change and be high from the lack of liquidity in some penny stocks. The small market capitalization and low liquidity of many penny stocks mean brokers have a large spread.

Seek strong security and avoid scams.

You should analyze individual penny stocks and conduct thorough research as there can be many scams that promise low costs and high returns. Make sure you avoid this situation by only trading with a broker you can trust and understanding the company you are investing in. 

The Qualities of a Good Penny Stock Broker

The qualities of a good penny stock broker involve many different factors. Once you have found a list of safe and regulated brokers, look at each in a more detailed fashion.

  • Easy navigation: A user-friendly platform initially might not seem important, but you’ll save yourself a lot of hassle in the long run if you choose a broker with this characteristic. Look for a platform that allows you to enter and exit trades quickly, manage your portfolio and answer any questions or problems you have. A user-friendly platform is easier to manage and can save a lot of future headaches.
  • Technical tools: Analysis and research are vital to traders and investors. Having additional technical analysis tools can help you learn more and test and implement new trading strategies. Of course, not everyone uses technical analysis, but having various indicators available can significantly benefit those who do.
  • Large selection of stocks with cheap fees: If you are interested in trading penny stocks, then a quality to look for is a broker with numerous penny stocks to choose from, with low fees. 
  • Outside access: A helpful addition can be linking external platforms to the brokerage, making managing your portfolio, charts, and any additional research more accessible. This quality can be important when managing an extensive portfolio.

Penny Stocks are Risky

Penny stocks can be high risk. However, with high risk comes the potential for high reward because of the number of shares you can purchase at a low price. Just be aware of an increased chance of failure from their highly volatile nature and lack of liquidity. Therefore, if you trade penny stocks, you at least want to make sure you have a broker you can rely on. 

Frequently Asked Questions

Q
Can you get rich investing in penny stocks?
A

Individuals can make money when investing in penny stocks, but it requires heavy research and understanding of the stock. Just remember, you face an increased chance of losing money when taking trading penny stocks.

Q
Is penny stock trading legal?
A

Like any other market, penny stock trading can be traded on many platforms and is completely legal. 

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