Whether you’re a beginner or an advanced trader, trading with penny stocks is a good option if you’re looking to invest without breaking the bank.
Much like any other investment, finding the perfect trading broker can be a headache.
That’s where we come in. We know first-hand how hard it can be to start investing. All of the terms, fees, and tools can be overwhelming.
This review will make your search easier.
Best Penny Stock Trading Platforms 2021
Here is a list of our favorite penny stock brokers. When compiling this list we considered fee structures, trading tools, and whether the broker had access to penny stocks market exchanges.
Interactive Brokers has made a name for themselves for offering investors access to global markets. They offer competitive fee structures featuring some of the lowest margin rates in the industry.
What makes Interactive Brokers so great is that they offer a wide variety of asset classes which include stocks, futures. bonds, and options. These asset classes are available in around 125 market exchanges.
Their trading platform is known for being easy to use.
We would recommend Interactive Brokers to intermediate and advanced traders.
|Smart order router||Streaming data is only able to run on a single device at a time|
|An array of asset classes available worldwide||IBKR Lite customers are unable to access the smart order router|
|Their mutual fund replicator finds less expensive ETFs||High fees charged on inactive accounts|
e*Trade is known for its commission-free stock trading. They also don’t charge any minimums or activity requirement fees.
A downside to this is that there is a $6.95 fee charged for OTC/penny stock trades. But, if you’re an active trader this fee is reduced after 30 trades per quarter.
e*Trade offers a web-based and desktop-based trading platform. If you prefer trading on the go, their mobile app Power e*Trade and the regular e*Trade is available. You should keep in mind that the mobile apps do not have all of the features that the web-based and desktop-based platforms have.
We would recommend this trading broker for beginners and advanced investors.
|Multiple trading platforms available||$6.95 commission charged for penny stock trades|
|Zero account minimums required|
|Extensive research and educational content available|
Much like e*Trade, Fidelity Investment offers a plethora of trading platforms available on desktop, online, and mobile.
Their mobile app is easy to use and has been streamlined for trading penny stocks.
In addition to their trading platforms, Fidelity offers an app called Fidelity Spires which acts as a guide for your investing and saving goals.
What makes Fidelity great is that they don’t charge commissions on stock trades. Their fee structure also does not have any minimum deposits or recurring fees.
|$0 commissions on stocks||While Fidelity allows for penny stock trading, they discourage the use of penny stocks|
|Zero account minimums||Fidelity strongly focuses on retirement investments and funds|
|Variety of trading platforms|
Charles Schwab is an excellent choice if you’re looking to get into penny stocks. They offer traders access to trade penny stocks through numerous exchanges. These include over-the-counter markers like OTCQX and OTCQB, as well as pink sheet stocks.
Charles Schwab offers both mobile and desktop-based trading platforms. Both platforms come with a plethora of features that will meet the needs of most traders.
The trading platform, Schwab’s StreetSmart, features a nifty Wall Street-style interface which we found quite exciting.
What makes Charles Schwab great is that they have no recurring fees or minimums if you have a main brokerage account. This includes zero commissions on stock trades.
|Zero commissions on stock trades||Fees are charged when using the mobile app|
|Zero account minimums||Broker trades are charged at $25|
|Great for trading penny stocks|
Ally Invest is a great option for both beginners and advanced traders.
What makes Ally Invest great is that they don’t charge trading costs on eligible US securities, they have a $0 account minimum, and offer a plethora of mutual funds.
Ally Invest offers traders all the fun features like forex trading, the coveted automated portfolio management option, and a huge selection of free tools.
|Commission-free trades||Do not offer no-transaction-fee mutual funds|
|Zero account minimums|
|Amazing web-based platform|
|A rich selection of research content and tools|
Firstrade has made a name for itself for offering commission-free investing. Their fee structure is amazing, with $0 on commissions when trading ETFs, options, stocks, and mutual funds.
Firstrade offers three trading platforms and a mobile app, which is great for traders on the go.
They are also a trusted broker with years of experience.
|Commission-free trading||Do not offer 24/7 customer support|
|Zero contract fee on options|
|Chinese language options|
Lightspeed is an online brokerage and a division of Lime Brokerage.
Their trading platforms have been optimized for advanced, professional traders who actively engage in market exchange.
What makes Lightspeed great is that they specialize in fast order entry and execution.
A downside to this trading broker is that they are lacking in educational content.
|Expert trading platforms||High commission fees|
|Low costs for options trading||High minimum investments required|
|Futures trading||Excessive account fees|
eOption is a high-end trading broker that offers an extensive suite of services and tools.
What makes eOption great is their $0 commission fees on stock and exchange-traded-fund trades. They also have a minimum investment requirement of $0.
In 2020 they added a robust profit and loss performance analysis feature. This gives traders better insight into their success and profits. This feature is great for beginners and advanced traders.
|Low margin rates||High account fees|
|Offers international account options|
|Automated trading option available|
TradeStation is another brokerage firm that is suited toward active, professional investors.
TradeStation is a great option if you’re keen on trying out penny stocks tradings. Both platforms, TS Select and TS Go offer commission-free stock trading on mobile devices.
Unfortunately, the $0 commission rates do not translate to the desktop-based platform. When using the desktop-based platform traders can expect to pay up to $10 per stock trade.
TradeStation makes up for this exorbitant fee by offering free access to robust data fees.
|Amazing trading platforms available on desktop and mobile||TS Select has a high account minimum balance requirement of $2,000|
|Free access to live data feeds||Fees are incurred for stock trades over 10,000 shares|
|Two types of accounts available||High commission fees on TS Go desktop trades|
What Are Penny Stocks?
Penny stocks are securities issued by small companies that trade at less than $1 a share. In simple terms, penny stocks are low-cost stocks that you can buy, trade, and sell for less than $1 per share.
Penny stocks are also known as over-the-counter stocks (OTC stocks), although keep in mind that there are different kinds of penny stocks.
Pink sheets are alternate listings for OTC stocks and petty trades as opposed to the U.S stock exchange. Generally, the stocks that are listed on pink sheet listings are from companies that are unable to meet the requirements for a listing on major exchanges.
Small companies can choose to list their stock on pink sheets to avoid the costs and regulatory requirements that come with being listed on a major exchange.
Because they’re so cheap, it is easy to buy and trade at high volumes however, penny stocks tend to be quite risky. Even more so than regular trading.
If you’re brave and willing to take the plunge, we would advise you to choose a broker and trading platform that is easy to use, cost-effective, and convenient.
- Allows small companies to gain public funding
- Penny stocks offer a means to gain access to major marketplace listings
- Due to the low costs, penny stocks can offer an upside in share appreciation
- Penny stocks tend to be risky because they lack the liquid market of regular stock
- Generally, information about the company’s financial record is limited
- Penny stocks have gained a reputation for having a high probability of fraud and bankruptcy of the underlying company
Penny stocks vs “normal” stocks
Penny stocks are generally defined by their low costs per share while ‘regular’ stocks are based on the company’s market capitalization. Plenty of regular stocks are blue chips that offer investors an extra layer of security in volatile markets.
Blue-chip stocks generally come from nationally recognized, financially sound, and well-established companies that have a long record of stability and reliable growth. These companies also sell widely accepted products and services.
The main difference between penny stocks and regular stocks is that penny stocks lack liquidity. This makes them riskier than regular stocks.
Why Invest in Penny Stocks?
Investing in penny stocks is an attractive venture because of their low stock prices which let traders buy and sell at high volumes. High volume trading has the potential for quick gains and more profits.
But, you should keep in mind that trading in penny stocks comes with additional risks and it is not always easy to liquidate your stocks.
Restrictions and limitations
Penny stocks are highly volatile. Investors need to be vigilant and keep a constant eye out for warning signs when exchanging in penny stocks markets.
Because penny stocks are volatile, traders should be prepared to endure high losses.
One of the major limitations of trading in penny stocks is that they trade infrequently. Should traders decide to sell their stocks, they might find it difficult to find a buyer. Infrequent trade lowers the liquidity of penny stocks and increases the risk of a trade.
It is difficult to get quotations on penny stocks and this adds to the low liquidity rate.
Another restriction or limitation when trading in penny stocks is that you might incur trade surcharges. Trade surcharges are additional fees that are added to goods and services that increase the initially quoted price.
These charges are added when a locality needs to collect fees for additional services.
Penny Stocks Scams
Before you decide to try penny stock trading it is worth mentioning a few of the scams that you could be exposed to. Here are a few common scams and some tips on how to avoid them:
The Pump and Dump Scam
Simply put, the pump and dump scam involves promoters circulating rumors and misinformation to hype up a particular stock or security to drive up its price.
They do this by using social media platforms like Discord, to send automated, anonymous messages.
Once the stock price increases, the promoters sell them at exorbitant prices.
Chop Stocks Scam
The Chop Stocks scam is when stocks are bought for pennies and sold for dollars. This lets brokers and stock promoters walk away with massive profits at the expense of inexperienced traders.
Dump and Dilute Scam
This scam is pretty straightforward. With this scam companies constantly issue shares intending to take investor’s money. Generally, companies running this scam regularly reverse-split their stock.
Now that you’re familiar with common penny stock scams. Here is how you can avoid them.
The first tip is to simply ignore any suspect emails, voice messages, or phone calls. The general rule of thumb is that if you receive an unsolicited ‘cold call’ from a stock promoter, is to immediately hang up. It is not worth your time or energy.
The second and most important tip is to do your due diligence. If you come across an investment opportunity that seems like it is too good to be true, do your research and approach with caution.
With any trading or investment venture, it is best to do your research and try to inform yourself as best as you can. If something sounds too good to be true, it probably is.
Best Penny Stock App
The best penny stock app by a land-slide is IBKR Lite by Interactive Brokers. IBKR Lite offers traders unlimited free trades in stocks. They also offer exchange-traded funds listed on the US trading exchanges.
For advanced traders wanting to expand their portfolio, IBKR offers investments in options, mutual funds, futures, and fixed incomes, to name a few. Interactive Brokers offers another trading platform, IBKR Pro. As the name implies, this app is best suited to advanced traders. IBKR Pro does not offer unlimited free trading so keep this in mind.
How to Pick A Penny Stock Broker?
Here are a few things to consider when choosing a penny stock broker.
An important issue that you should consider when choosing a trading broker is the security options they offer. Generally, trading platforms offer a two-step log-in process to verify your identity.
This protects your account and your private information from hackers.
If you want additional security we advise that you choose a broker that offers cold storage.
Checking to see whether a trading broker is regulated is the most important thing you should consider when choosing a trading platform. We would also advise you to check out who they are regulated by. Remember, not all regulatory bodies were created equal.
Make sure that the regulatory bodies are reputable.
Regulation offers you some protection. It also gives you peace of mind that the broker you choose is legit.
Types of securities you can trade
If you're an advanced trader looking to expand your portfolio, finding a broker that deals in a robust selection of securities are essential. Securities can include equities or fixed income instruments.
Whether you’re a beginner or a professional, the broker you choose should provide a robust trading platform.
The trading platform should offer a plethora of tools, research, and educational content. Some brokers offer paper trading accounts which are great for testing out a platform before making a commitment.
If you have an active lifestyle, a broker that offers a mobile app option is something worth looking into.
Margin & Leverage
If you’re a professional, advanced trader, it is worth checking out the margin requirements. It is also worth checking out if they offer leverage and to which asset classes leverage is available.
Education and Research
The educational and research content is an essential component of any trading platform. Whether you’re a beginner or professional, this is something you should be checking for.
Education content is vital, especially for beginners. Paper trading accounts are great educational tools and allow you to get a feel for the trading platform before signing up.
Access to OTCBB and Pink Sheets
If you’re looking to get into trading penny stocks you should check if the broker you’re considering offers access to penny stocks market exchanges. Penny stocks market exchanges include OTCBB and Pink Sheets listings.
A robust selection of trading tools is a must whether you’re a beginner or an expert trader.
Trading tools are important for developing trading strategies and keeping up to date with the market exchange.
Trading tools include margin loans, advanced order types, and research sites.
Costs – Fees & Commissions
Most trading brokers should have their fee structure readily available on their websites. As a general rule of thumb, you should aim for brokers with transparent fee structures. No one likes to be surprised by those pesky hidden costs and fees.
We advise that you do your research and choose a broker that offers you value for money.
Trade surcharges are additional fees that are added to the cost of transaction or the cost of stock because of additional services incurred. These are nasty little buggers and definitely something you should look out for.
Study the broker's fee structures to make sure that they do not include trade surcharges.
Like with any other asset class, there is not a set amount that you need to start investing in penny stocks. Most trading brokers have fee structures that detail any fees you could incur while trading. These include commission fees, minimum deposit amounts, and margin requirements. We would advise that you do your research and choose a broker with a transparent fee structure to avoid hidden costs.
The short answer is no. Contrary to popular belief, making money from penny stock trades is neither quick nor easy. As with any other trade, it requires patience, research, and know-how. While you can make a profit from trading penny stocks, it is unlikely that you’ll become rich due to the high volatility and low liquidity rates. Anyone that promises you otherwise might be a scam artist.
The easy answer is yes but we advise against it. Penny stocks are risky and with the low return rates, it is just not worth it. Buying penny stocks without a reputable broker is also an easy way to get scammed out of your hard-earned cash.
No, Apple was never considered a penny stock. Penny stocks are generally defined as being valued at below $5. At Apple\s historically low point, their stocks were valued at $8.
Here are two pieces of advice we can offer. The first is when looking at penny stocks, try to find one that has already started spiking. The second piece of advice is to do your research. This is especially important if you’re a beginner. Proper research can make or break you.
It is possible to day trade with penny stocks however, we would advise against it. Day trading is a risky venture and combining it with penny stocks is not a good idea. Both are highly volatile and require expertise and experience.