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Best Brokers for Penny Stocks Trading 2019

Blain Reinkensmeyer

Published by Blain Reinkensmeyer


Monday, February 19th, 2018

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Penny stocks, companies whose shares trade for under $1, are risky investments. The vast majority of time, companies trade for pennies per share because of poor financial metrics, which results in an uncertain future and more risk. In fact, according the US Securities and Exchange Commission (SEC), "The term 'penny stock' generally refers to a security issued by a very small company that trades at less than $5 per share."

The Best Brokers for Penny Stocks Trading 2019

Here are the top brokers for trading penny stocks, based on 29 variables.

  1. TD Ameritrade - $6.95 per trade
  2. Fidelity - $4.95 per trade
  3. Charles Schwab - $4.95 per trade
  4. Interactive Brokers - $.005 per share
  5. TradeStation - $5 per trade

Best brokerages for trading penny stocks

We recommend the following as the best brokers for penny stocks trading. None of these brokers charge any additional fees associated with stocks less than $1. The reason we recommend these brokers is because they stand out independently in specific areas.

TD Ameritrade Logo
Exclusive Offer Trade free for 90 days + get up to $600 cash. Learn More
Fidelity Investments Logo
Charles Schwab Logo
Current Offer Earn 500 commission-free online trades at Schwab. Learn More
Interactive Brokers Logo
Exclusive Offer New clients that open an account today receive a special margin rate. Learn More
TradeStation Logo
Current Offer Low Fees and Free Market Data. Trade with TradeStation. Learn More

How to Buy Penny Stocks

Penny stocks typically trade Over the Counter (OTC), meaning they are not listed on a formal exchange like the NASDAQ. Instead, they are instead listed as a Pink Sheet or trade on the OTC Bulletin Boards (OTCBB). If a company listed on the NASDAQ trades below $1 for a certain period of time (or fails to meet other quality metrics), the company can be delisted and forced to convert to a OTCBB or Pink Sheet listed security.

td ameritrade penny stock order page

That said, not all companies that trade OTC are penny stocks. Some are legitimate companies growing their business with the goal of one day being listed on a major exchange such as the NASDAQ or NYSE. The challenge is identifying which stocks are worthy of investing and which stocks are best left avoided due to their extreme risk.

In summary, here are five important tips to remember when buying penny stocks:

  • They are risky - Penny stocks trade for less than $1 per share for a reason.
  • Be aware of fraud - Watch out for pump and dump schemes.
  • Be aware of paid promotions - Ignore emails claiming amazing returns, they are fake.
  • Do your own research - Research the company before you buy.
  • Be aware of costs - Select a broker with flat-fee trades.

How to penny stock trading costs

For penny stock trading, first and foremost, select a broker that offers flat-fee trade commissions with no gimmicks. Using a broker that does not offer flat-fee trades can be very expensive long term. Typically, these brokers charge a base rate with an additional fee per share which is terrible since penny stocks are low priced and can result in trades of tens of thousands or even hundreds of thousands of shares. Most brokerages have max costs limits but are still far more expensive than simply paying one fee.

Example 1: TD Ameritrade charges a flat-rate $6.95 per trade. You buy $5,000 worth of penny stock XYZ at a price of $.13 per share, totaling 38,461 shares (5,000 / .13). Your cost to buy the shares is then $6.95.

Example 2: Interactive Brokers charges $.005 per share with a max cost of 0.5% of the trade value. You buy $5,000 worth of penny stock XYZ at a price of $.13 per share, totaling 38,461 shares (5,000 / .13). Your cost to buy the shares is then $25 ($192.31 using per-share method or $25 cap, thus capped at 0.5% of trade value).

Avoiding penny stocks fraud

Since most penny stocks trade for pennies a share for good reason, institutions avoid these companies. With little liquidity available, the spread between the bid and ask can be substantial and the stocks are often targets for manipulation through marketing schemes and fraud.

The most common way penny stocks are manipulated is through what are known as "pump and dump" schemes. The company will pay penny stock promoters to blast hundreds of thousands of emails and post on social message boards fake news and falsified information about the company to generate excitement and encourage unknowing investors to buy. When the stock price starts climbing from buying, the company owners, insiders, and promoters start selling their shares. Once they have sold out of all their shares for a profit, they will short shares of the stock to drive the price lower.

Common penny stock myths

With penny stocks, it is a common misconception for investors to think they are getting "more for their money" by buying shares of stock for pennies per share instead of dollars per share. This is completely false. Stocks that trade for pennies are actually much more risky, as highlighted above, and stocks that trade for $10, $50, $100, or higher per share are companies with financials strong enough to support institutional ownership alongside, more importantly, a listing on a major stock exchange such as the NYSE.

While the risks associated with trading penny stock trading are high, investors can make money, which is why they are still traded each and every day. Retail investors will forever be attracted to cheaper share prices alongside the dream of buying a stock for pennies a share and watching it surge to dollars per share, yielding dramatic returns. Sadly, this is very rarely the outcome for penny stocks. Instead, the majority end of up eventually going bankrupt and shareholders lose everything.

Best Penny Stock Brokers 2019 (Summary)


Online Broker Trading Platform Minimum Deposit Commissions Overall Rating
TD Ameritrade thinkorswim $0 $6.95 4.5 Stars
Fidelity Active Trader Pro $0 $4.95 4.5 Stars
Charles Schwab StreetSmart Edge $0 $4.95 4 Stars
Interactive Brokers Trader Workstation (TWS) $0 $0.005 per share 4 Stars
TradeStation TradeStation 10 $500 $5.00 4 Stars

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All pricing data was obtained from a published web site as of 09/01/18 and is believed to be accurate, but is not guaranteed. The StockBrokers.com staff is constantly working with its online broker representatives to obtain the latest pricing data. If you believe any data listed above is inaccurate, please contact us using the link at the bottom of this page. For stock trade rates, advertised pricing is for a standard order size of 500 shares of stock priced at $30 per share. For options orders, an options regulatory fee per contract may apply.

TD Ameritrade, Inc. and StockBrokers.com are separate, unaffiliated companies and are not responsible for each other’s services and products. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading privileges subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options. Offer valid for one new Individual, Joint or IRA TD Ameritrade account opened by 9/30/2018 and funded within 60 calendar days of account opening with $3,000 or more. To receive $100 bonus, account must be funded with $25,000-$99,999. To receive $300 bonus, account must be funded with $100,000-$249,999. To receive $600 bonus, account must be funded with $250,000 or more. Offer is not valid on tax-exempt trusts, 401k accounts, Keogh plans, Profit Sharing Plan, or Money Purchase Plan. Offer is not transferable and not valid with internal transfers, accounts managed by TD Ameritrade Investment Management, LLC, TD Ameritrade Institutional accounts, and current TD Ameritrade accounts or with other offers. Qualified commission-free Internet equity, ETF or options orders will be limited to a maximum of 250 and must execute within 90 calendar days of account funding. No credit will be given for unexecuted trades. Contract, exercise, and assignment fees still apply. Limit one offer per client. Account value of the qualifying account must remain equal to, or greater than, the value after the net deposit was made (minus any losses due to trading or market volatility or margin debit balances) for 12 months, or TD Ameritrade may charge the account for the cost of the offer at its sole discretion. TD Ameritrade reserves the right to restrict or revoke this offer at any time. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Please allow 3-5 business days for any cash deposits to post to account. Taxes related to TD Ameritrade offers are your responsibility. Retail values totaling $600 or more during the calendar year will be included in your consolidated Form 1099. Please consult a legal or tax advisor for the most recent changes to the U.S. tax code and for rollover eligibility rules. (Offer Code 264) TD Ameritrade Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2017 TD Ameritrade.

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