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Best Brokers for Penny Stock Trading 2021

Blain Reinkensmeyer

The StockBrokers.com best online brokers 2021 review (11th annual) took three months to complete and produced over 40,000 words of research. Here's how we tested.

Penny stocks are companies whose shares trade for under $1. Penny stocks are risky investments because, in most cases, they trade over-the-counter (OTC), which means the companies are too small and unprofitable to trade on a major exchange like the NASDAQ or NYSE.

To help investors find the best brokers for penny stocks trading, we compared the pricing and trading platforms of 11 brokers. Our top pick for 2021, TD Ameritrade, combines flat-rate pricing with excellent trading tools and research capabilities.


What are penny stocks?

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 most common penny stocks are companies that trade for pennies per share (less than $1).


Best Online Brokers for Trading Penny Stocks

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

Fidelity logo

$0 per trade - Open Account
Trade Commission-Free: No commissions to trade online U.S. stocks, ETFs, and options.1

Fidelity is a value-driven online broker offering $0 trades (including penny stocks), industry-leading research, excellent trading tools, an easy-to-use mobile app, and comprehensive retirement services. Serving over 32 million customers, Fidelity is a winner for everyday investors. Read full review

TD Ameritrade logo

$6.95 per OTCBB trade - Open Account
Exclusive Offer: Get up to $375 and trade commission-free with TD Ameritrade.

Despite charging $6.95 for penny stock trades (regular stock trades are $0), TD Ameritrade offers the most comprehensive selection of trading tools through the thinkorswim trading platform. While not our top pick for trading penny stocks, TD Ameritrade finished first Overall in our 2021 Review. Read full review

Charles Schwab logo

$0 per trade - Open Account
Current Offer: $0 online stock, ETF, and options commissions at Schwab.

Charging no additional fees for trading stocks under $1, Charles Schwab offers a balanced selection of stock research and trading tools through the Schwab StreetSmart Edge desktop platform. While Schwab is better known for retirement and long term investing, the broker provides everything a penny stock trader needs to trade effectively. Read full review

TradeStation logo

$0 per trade

When using TradeStation for trading OTCBB penny stocks, the cost under the TS Select and TS Go pricing plans is $0 per trade up to 10,000 shares ($0.001 per share thereafter). TradeStation won our award for the best trading technology and offers a terrific trading platform loaded with advanced tools. Read full review

Interactive Brokers logo

$.005 per share - Open Account
Exclusive Offer: New clients that open an account today receive a special margin rate.

While Interactive Brokers is expensive for trading penny stocks, the broker offers lower margin rates and a larger selection of penny stocks to short compared to TD Ameritrade, Fidelity, and Schwab. Read full review


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 $.005 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 $.005 per share is $100, 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?

No. Statistically speaking, the majority of investors that trade penny stocks lose money. Unfortunately, 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?

Penny stocks trade on unregulated exchanges. Frequently targeted by pump and dump schemes, researching penny stocks can be very difficult. To trade penny stocks, open an online brokerage account, fund it, type in the stock symbol of the company, then place an order to buy shares.


Where do you find penny stocks?

To find penny stocks to trade, start by using a penny stock screener or market mover list. For example, the Yahoo Finance Trending Tickers and Small Cap With Momentum 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 AM EST.


Is it a good idea to buy penny stocks?

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 aware of fraud - Watch out for pump and dump schemes.
  • Be mindful of paid promotions - Ignore emails claiming big returns; they are a scam.
  • Do your own research - Thoroughly research the company before you buy.
  • Be aware of costs - Select a broker with flat-fee trades.

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.


Why are OTC stocks risky?

Companies that trade over-the-counter (OTC) are not regulated. Unlike companies that trade on the NASDAQ or NYSE exchange, OTC companies do not have to meet any specific compliance rules or quarterly reporting requirements. As a result, like buying a used car, you are left to trust whatever information is provided to you, making OTC stocks risky investments.


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.


Summary

To recap, here are the best online brokers for trading penny stocks.

Best brokers for trading penny stocks 2021


Read Next

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Methodology

For the StockBrokers.com 11th annual best trading platforms review published in January 2021, a total of 2,816 data points were collected over three months and used to score brokers. This makes StockBrokers.com home to the largest independent database on the web covering the online broker industry.

Participation is required to be included. Each broker completed an in-depth data profile and offered executive time (live in person or over the web) 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.

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Blain Reinkensmeyer

About the author: As Head of Research at StockBrokers.com, Blain Reinkensmeyer has 20 years of trading experience with over 1,000 trades placed during that time. Referenced as a leading expert on the US online brokerage industry, Blain has been quoted in the Wall Street Journal, The New York Times, and the Chicago Tribune, among others.


All pricing data was obtained from a published web site as of 01/19/2021 and is believed to be accurate, but is not guaranteed. 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.

1$0.00 commission applies to online U.S. equity trades, exchange-traded funds (ETFs), and options (+ $0.65 per contract fee) in a Fidelity retail account only for Fidelity Brokerage Services LLC retail clients. Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). There is an Options Regulatory Fee (from $0.03 to $0.05 per contract), which applies to both option buy and sell transactions. The fee is subject to change. Other exclusions and conditions may apply. See Fidelity.com/commissions for details. Employee equity compensation transactions and accounts managed by advisors or intermediaries through Fidelity Clearing & Custody Solutions® are subject to different commission schedules.

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. View terms.

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