Great profits come with great risk. This is especially true when you trade penny stocks of companies with small capitalizations.
With penny stocks that are generally under $5 per share, you can double your money or lose twice as much as you’ve invested overnight or even on the same day. That’s why niche traders have learned to invest in penny stocks with dividends as an alternative to offset short-term market disruptions while securing their future at the same time.
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Why Penny Stocks with Dividends?
Owing to its illiquidity in the stock market, cashing in on penny stocks despite their improved performance can be a challenge. A diverse penny stock portfolio that offers dividends can be a consolation to your woes till your order gets a chance to be filled.
Any micro-cap company that provides dividends on its penny stocks is an indication of growth. Unlike medium- and large-cap enterprises that run the risk of diluting the value of each share, startups and nano-cap companies stand to gain stock value over regular dividends. These penny stocks can become a reliable source of income for you as canceling dividends can seriously tarnish the reputation of up-and-coming companies, urging investors to trade penny stocks on a whim.
Best Online Brokers for Penny Stocks
Before you go looking for the companies and their tickers on the NASDAQ and NYSE, you need to know how to trade penny stocks. If you can’t find any penny stocks on the national stock exchange or NASDAQ, it’s because companies with a stock value below $1 are found on pink sheets or over-the-counter bulletin boards (OTCBB).
Penny stocks are known to be extremely volatile and can shoot up their value by 100% or more in a matter of minutes. Similarly, it can also crash and drop company stock value in the blink of an eye.
An online broker can help you identify the best penny stocks to trade. Be aware that some brokers don’t extend the $0 commission rate on unlisted stocks and will apply an additional fee for trading penny stocks. Make sure you ask all the questions listed below before signing up for an online broker.
Brokerage Criteria for Penny Stocks
- What is the upper limit on penny stock valuation? Is it $5, $3 or $1?
- Are there subcharges involved in penny stock trading?
- Is there a flat-fee on penny stock trades?
- Is there a limit on the number of penny stocks traded in a day?
- Are there charges for withdrawals?
- Can you view the trading history of penny stocks?
Once you are absolutely clear on these criteria, you can select the online broker that is right for you. Benzinga recommends you start your investment journey by trading penny stocks on these top-notch online brokers.
1. TradeStation
TradeStation is a commission-free online broker that gives you access to over 15,000 penny stocks to trade with. You can either choose to open a TS Select account with a minimum deposit of $2,000 or a TS GO account with a $0 minimum deposit. It is available on desktop, web and mobile.
Day traders swear by TradeStation’s chart tool as it enables you to pick and trade stocks by directly clicking on the tickers on display. You can subscribe to real-time OTC information and updates with a monthly fee that ranges between $6–$86. The historical record on daily stock data can go back to over 50 years.
Commissions
$0
when you trade stocks, ETFs, options, and mutual funds online
Account Minimum
$0
2. Firstrade
Firstrade offers you exhaustive pink sheets of over 10,000 OTC stocks that you can trade at a $0 commission rate. You can sign up for a Firstrade account with a $0 minimum deposit. The online brokerage platform features a dedicated filter on the stock screener to help you quickly navigate through thousands of penny stocks.
Speed is everything when it comes to penny stock trading. Firstrade’s proprietary technology has led it to become an industry leader with an average trade execution time of 0.062 seconds. It has an excellent customer support team that you can interact with on email, chat and call to answer any queries you have. Firstrade is also among the few online brokers that give you full-access to Morningstar research tools at no extra cost.
3. TD Ameritrade
TD Ameritrade lets you browse through 10,000 penny stocks and applies a standard commission fee of $6.95 per trade. You can open an account on TD Ameritrade with a $0 minimum deposit. It has a handy stock screen that lets you sort OTC stocks by their historical performances.
TD Ameritrade comes equipped with a set of powerful research tools called thinkorswim. With it, you can track data on micro-caps and compare historical earnings per share on penny stocks to help you improve your trading tactics.
4. Interactive Brokers
You can open an account on Interactive Brokers with a $0 minimum deposit. You can trade OTC stocks on Interactive Brokers at a low commission rate of $0.005 per share for IBKR Pro and $0 for IBKR Lite. If you’re planning on regularly buying or selling the bulk of shares listed on the pink sheets, Interactive Brokers Pro can prove to be quite expensive.
On the plus side, Interactive Brokers has a range of tech tools to optimize your trading strategy. Its Trader Workstation software gives you easy access to over 100 order types and algorithms to simplify your trading process. Its Risk Navigator tool helps you limit the risk exposure of your trades in real-time. IB’s SmartRouting tool gives you the best stock price at the time of your order and has been reported to provide traders an average savings of $6.70 per trade.
Penny for Your Trades
Companies listed on national stock exchanges must provide financial information to the SEC about their assets, liabilities and periodic performances. Penny stock companies listed on pink sheets and bulletin boards are not required to share that information with the SEC, therefore any data regarding its business health and growth can be scarce.
If you are taking your first steps toward investing, penny stocks are not for you. The low cost per stock can seem appealing but are not appropriate for traders with low-risk tolerance. Before you proceed, you should consider taking penny stock courses to help you gain the skills required for successful trading.
