Other brokers tested
In addition to our top five trading platforms for penny stock trading in 2023, we reviewed 12 others: Ally Invest, Charles Schwab, eToro, Interactive Brokers, J.P. Morgan Self-Directed Investing, Merrill Edge, SoFi Invest , Tradier, Robinhood, tastytrade, Vanguard and Webull.
To dive deeper, read our full reviews.
What are penny stocks?
Definitions of penny stocks vary. According to the U.S. Securities and Exchange Commission, or SEC, "penny stock" generally refers to a security issued by a very small company (i.e., micro-cap) that trades at less than $5 per share. The most common penny stocks are companies that trade for pennies per share (less than $1). We think of penny stocks as microcap companies with prices under $5 that only trade over the counter.
What are OTC brokers?
An OTC broker can execute trades of unlisted securities through the “over-the-counter” market. The most popular stocks trade on stock exchanges, and any stockbroker should be able to trade a stock listed on an exchange. But some stocks can also be traded away from an exchange through the OTC market, which consists of broker-dealers who trade directly with each other. You should be very wary of a penny stock broker that only offers penny stocks.
What broker is best for penny stocks?
Based on our analysis of top U.S. online brokers, these are the best brokers for penny stock trading:
- TD Ameritrade
Fidelity stock research gallery
Is it illegal to buy penny stocks?
No. It's perfectly legal to trade penny stocks — or any listed security — with a regulated broker. However, it is illegal to do so with any non-public data (also known as insider information), and penny stocks are more susceptible to insider trading and market manipulation than larger-cap companies.
As an example of the risks involved, penny stocks are often targeted for so-called pump and dump schemes. Promoters of such schemes will lure in investors with the goal of "pumping" up the share price, before dumping their own shares at the expense of the investors, often causing substantial losses.
Is it a good idea to buy penny stocks?
Investing in penny stocks shouldn't be entered into without some forethought. Here are five tips to remember when buying penny stocks:
- They are risky. Penny stocks trade for less than $1 per share for a reason.
- Be wary of frauds. Watch out for pump and dump schemes.
- Be mindful of paid promotions. Ignore emails claiming big returns; they are most likely scams.
- Do your own research. Thoroughly research the company before you buy.
- Be aware of costs. Select a broker with flat-fee or $0 trades.
Why are OTC stocks risky?
Companies that trade over-the-counter (OTC) are not as closely regulated as exchange-listed stocks and are subject to less stringent disclosure requirements. OTC companies do not have to meet the same level of disclosure with specific compliance and reporting requirements as companies that trade on the NASDAQ or NYSE exchanges. As a result, OTC stocks are difficult to research, making them risky investments. They are also usually less liquid, making them difficult to trade and subject to market manipulation.
Can you make money with penny stocks?
Yes, you can make money on penny stocks, but investing in them is a gamble. To minimize your risk, carefully research the company whose stock you're interested in, and be wary of outsized promises of returns — which likely is signaling a scam. It's also important to use a reputable broker; see our guide to the best stockbrokers for 2023.
Most retail investors have a better chance of making money with higher-quality stocks that have a larger capitalization than penny stocks. For example, buying and holding a low-cost index fund over the long term is a safer investment than putting the same amount in a handful of penny stocks over a five- or 10-year period. Generally, investing in penny stocks is best avoided unless you have experience with angel investing and researching startups.
Are penny stocks hard to trade?
Yes, penny stocks are hard to trade, as they are volatile and illiquid, which can have a negative impact on the bid-ask spreads and your ability to get into and out of your positions. Penny stocks are also hard to research, which further compounds the difficulties of making money trading them.
How much does it cost to trade penny stocks?
The cost of trading penny stocks depends on the online broker you use. If you use a broker that offers flat-fee trades instead of per-share rates, trading penny stocks is not expensive. We also recommend avoiding brokers that charge a monthly platform fee, data fees, or monthly minimums, as those costs quickly add up.
Example 1 (flat-fee): TD Ameritrade charges a flat-rate $6.95 per OTC trade, while Fidelity charges $0 (no charge). Thus, your cost to buy OTC shares is just $6.95 and $0, respectively.
Example 2 (per share): Interactive Brokers charges $.0035 per share with a max cost of 0.5% of the trade value. You buy 20,000 shares of penny stock XYZ at a price of $.13 per share ($2,600). 20,000 shares x $.0035 per share is $70, while $2,600 x .5% is $13. Thus, your cost to buy the shares is $13 (0.5% of trade value).
Can you get rich off penny stocks?
You might get rich off penny stocks, but it’s very unlikely. There’s a reason why U.S. regulators discourage investors from investing in them. The majority of investors who trade penny stocks lose money and most success stories come from social media, where profit claims are unaudited.
Penny stock scammers will advertise guaranteed or low-risk profits as a way to lure beginner traders into paying for expensive monthly subscriptions or lessons. Chat rooms, newsletters, and live streams are typical subscription offerings that beginners should review with great caution to avoid scams.
How do beginners buy penny stocks?
For beginners who want to buy penny stocks, the following checklist can help improve your experience buying and trading.
- Choose a reputable broker: Pick a trustworthy firm to open an online brokerage account.
- Analyze details: Research the penny stocks you are considering as much as possible, which will probably be difficult given the lack of reporting required by OTC exchanges.
- Don’t get scammed: Avoid penny stocks that are susceptible to market manipulation such as those targeted by "pump and dump" schemes, or that you may have heard about on online forums and in chat groups.
- Diversify properly: Make sure that you diversify your portfolio to avoid putting too much at risk in one or more penny stocks, or too much money in penny stocks compared to higher-quality investments.
- Have a strategy: Decide what price targets you have for the upside (profit) and downside (risk), where you would exit the trade, or on a time horizon for which you are willing to hold the position, regardless of the price action. Always use limit orders.
- Take long-term views: Choose quality companies that have long-term potential for growth, and be willing to endure long stretches of time where such results may be delayed, including in the reflected penny stock price.
Where do you find penny stocks?
If you want to know where to buy penny stocks or just want to do some research, you can use an online stockbroker; most offer penny stock trading. The best penny stock brokers in our analysis include the following:
- TD Ameritrade
For additional tools to find penny stocks to trade, you can start with a penny stock screener or market mover list. For example, Yahoo Finance's Trending Tickers and Small Cap Gainers pages both list companies that have jumped in price for the day. Ideal for day trading, the best time to trade momentum stocks is after the market opens at 9:30 a.m. Eastern.
What app can I use to buy OTC stocks?
Here are the best mobile trading apps for buying OTC stocks:
- TD Ameritrade
Once you find the stock symbol you want to trade and create an order, you may need to fill out a questionnaire and accept a risk disclaimer related to the increased risk that comes with trading stocks that are not listed on a primary venue, such as the NYSE or NASDAQ.
Best brokers for penny stocks gallery
Can penny stock prices be manipulated?
Since most penny stocks have a low number of shares traded each day (low liquidity), prices are easy to manipulate. This makes penny stocks prime candidates for pump and dump investment schemes.
What is a common penny stock myth?
When trading penny stocks, beginners often think they are getting "more for their money" because they can buy more shares in total. This is a myth. Stocks that trade for pennies are far more risky because they trade OTC and do not meet the strict financial requirements to be listed on a major stock exchange like the NASDAQ or NYSE.
Does Robinhood support OTC stocks?
Robinhood does not support trading OTC stocks. The only penny stocks supported by Robinhood are stocks that trade on either the NASDAQ or NYSE. If a company listed on the NASDAQ or NYSE trades below $1 for a certain period of time (or fails to meet other minimum financial metrics), it can be delisted and forced to trade OTC. As a result, OTC stocks are risky.
StockBrokers.com 2023 Overall Ranking
Here are the Overall rankings for the 17 online brokers who participated in our 2023 Review, sorted by Overall ranking.
Explore our other online trading guides:
For the StockBrokers.com 13th Annual Review published in January 2023, a total of 3,332 data points were collected over three months and used to score 17 top brokers. This makes StockBrokers.com home to the largest independent database on the web covering the online broker industry.
In order to assess the overall trading experience, we test across a wide range of devices and operating systems. Testing was done on devices for both Apple and Android operating systems. For Apple: iPhone XS with the most current iOS. For Android: Samsung Galaxy S9+, 6.2" 4K Super AMOLED (2960x1440) 64-bit Octa-Core Snapdragon 835 Processor 2.7GHz, 6GB RAM 6.2" with the most current operating system.
Our research team meticulously collects data on features with particular importance to penny stock traders, such as trading costs, availability of flat-fee trades, ease of platform and app use, and resources for researching a stock. In total, we evaluate nearly 200 variables for each broker.
As part of our annual review process, all brokers had the opportunity to provide updates and key milestones and complete an in-depth data profile, which we hand-checked for accuracy. Brokers also were offered the opportunity to provide executive time for an annual update meeting.
Our rigorous data validation process yields an error rate of less than .001% each year, providing site visitors quality data they can trust. Learn more about how we test.
About the Editorial Team
Sam Levine, CFA, CMT
Sam Levine is a longtime writer, investor and educator with nearly three decades of experience in the investing industry. His specialty is making even the most complicated investing concepts easy to understand for beginning and intermediate investors. He holds two of the most widely recognized certifications in the investment management industry, the Chartered Financial Analyst and the Chartered Market Technician designations. Previously, he was a contributing editor at BetterInvesting Magazine and a contributor to The Penny Hoarder and other media outlets.
Blain Reinkensmeyer has 20 years of trading experience with over 2,500 trades placed during that time. He heads research for all U.S.-based brokerages on StockBrokers.com and is respected by executives as the leading expert covering the online broker industry. Blain’s insights have been featured in the New York Times, Wall Street Journal, Forbes, and the Chicago Tribune, among other media outlets.
Carolyn Kimball is managing editor for Reink Media and the lead editor for the StockBrokers.com Annual Review. Carolyn has more than 20 years of writing and editing experience at major media outlets including NerdWallet, the Los Angeles Times and the San Jose Mercury News. She specializes in coverage of personal financial products and services, wielding her editing skills to clarify complex (some might say befuddling) topics to help consumers make informed decisions about their money.
Steven Hatzakis is the Global Director of Research for ForexBrokers.com. Steven previously served as an Editor for Finance Magnates, where he authored over 1,000 published articles about the online finance industry. Steven is an active fintech and crypto industry researcher and advises blockchain companies at the board level. Over the past 20 years, Steven has held numerous positions within the international forex markets, from writing to consulting to serving as a registered commodity futures representative.
1 Fidelity Sell orders are subject to an activity assessment fee from $0.01 to $0.03 per $1,000 of principal. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.
TD Ameritrade, Inc. and StockBrokers.com are separate, unaffiliated companies and are not responsible for each other’s services and products.