Best Penny Stock Brokers

ShutterstockProfessional / Shutterstock.com

The so-called penny stock industry has long had a bad reputation as a realm of stock promoters and other hucksters looking to squeeze money from investors. And while this low-cost stock industry still exists, there is a new definition of penny stocks that applies to a much wider universe of businesses. Still, there are huge risks in buying penny stocks, even in the midst of potential rewards, and you may very well end up losing some or all of your investment.

Even with all the risk, many investors are still tempted by penny stocks. After all, it’s quite common to hear from a friend how he made a splash in penny stocks, or from a stock commentator offering the best pick of the day. If you understand the risks of buying penny stocks and are still looking to invest, it is best to at least work with a reliable and inexpensive broker. With these highly volatile and lesser-known stocks, a robust research platform and low transaction costs can be particularly important.

Here are the best penny stock brokers:

  • Charles Schwab
  • TradeStation
  • TD Ameritrade
  • loyalty
  • Interactive brokers
  • Edge Merrill

Check Out: The Most Successful Penny Stocks of All Time

What is a Penny Stock?

The Securities and Exchange Commission defines a penny stock as one issued by a very small company with a price below $5 per share. Most, if not all, penny stocks are referred to as so-called “micro-cap” stocks, in reference to the small size of their market capitalization.

The term penny stock refers to the fact that the SEC previously defined these securities as any micro or small cap stock trading at a price below $1.

What to Consider in a Penny Stock Broker

A good penny stock broker will have many traits similar to a good broker of other types of stocks, such as low trading costs and access to quality tools and research. Given the low price per share, however, the need to reduce trading costs may become even more pronounced.

It is important to note that even the best research tools may still be limited to stocks registered with the SEC and traded on major exchanges. While many stocks in the $5 range trade on major exchanges and are registered with the SEC, this does not apply to many true “penny stocks” that trade for a handful of cents per share. You may have to do some extra legwork on your own to find legitimate information on these types of companies, even with the best penny stock brokers.

Here is an overview of the top six penny stock brokers:

Charles Schwab

  • Committee: $0 per trade
  • Minimum account: $0

Charles Schwab is a well-established brokerage with a long history, and the cost per trade also puts it among the most competitively priced. The $0 account minimum also makes it a great choice for investors just looking to get into penny stocks.

TradeStation

  • Committee: $0 per trade
  • Minimum account: $0* ($2,000 minimum to use desktop platform, $0 for web and mobile)

TradeStation has reduced its commissions to zero to better compete in the online brokerage space, which is good news for penny stock investors. However, if you want to use the company’s desktop trading platform, you will need to shell out $2,000 to open an account. Note that TradeStation charges an inactivity fee of $50 if you don’t keep $2,000 in the account or make at least five trades per year.

Support Small: Don’t miss your favorite small business’s nomination to be featured on GOBankingRates – Until May 31

TD Ameritrade

  • Committee: $0 per trade
  • Minimum account: $0

The $0 per trade fee at TD Ameritrade used to be revolutionary, but it’s now a basic requirement to be one of the best penny stock brokers, or even online brokers in general. This is especially true if you plan to trade small amounts of several different stocks. With no account minimum, TD Ameritrade could be a solid choice for novices looking to get started with minimal investment.

Get the answer: do you need a broker to buy stocks?

loyalty

  • Committee: $0 per trade
  • Minimum account: $0

Fidelity’s trading fees are in line with the most competitive in the industry, and there are no annual fees. This mutual fund powerhouse is now also competitive as a stock trading firm, with no account minimums or fees. This makes the venerable company a good choice for penny stock investors.

Related: The Best Online Stock Brokers for Beginners

Interactive brokers

  • Committee: $0 per share
  • Minimum account: $0

Interactive Brokers has a variety of fee schedules, but US residents have the option of using a platform with no minimums or commissions to trade US-listed stocks and ETFs. The brokerage won the 2021 Barron’s Award for the #1 Best Online Broker, and it’s certainly a solid pick for penny stock traders.

Edge Merrill

  • Committee: $0 per trade
  • Minimum account: $0

Merrill Edge was one of the first expansions of a traditional full-service brokerage into the low-cost online brokerage space. With a minimum account of $0 and a commission schedule of $0 per trade, Merrill Edge competes with the best online brokers. Merrill Edge has the added benefit of being backed by the research capabilities of a well-known global full-service company.

Look at this: The best robo-advisors

Invest in Penny Stocks

Several risks associated with penny stock investing require you to be careful. You should seriously evaluate your investment options and financial situation before considering buying stocks through a broker. Penny stocks have certain key characteristics that can easily burn someone unfamiliar with the specific issues presented when looking at smaller companies.

Genuine “penny stocks,” or those that trade for cents per share, don’t always have to register with the SEC, which means they aren’t required to file regular, audited reports. professionals on their finances and have no minimum requirements for shareholders. Investing without having access to quarterly reports, tax returns or balance sheets is always inadvisable and even more risky when it comes to companies that are not regularly in the public eye.

Although the SEC’s definition of penny stocks includes stocks up to $5 per share that can be registered and traded on an exchange, that doesn’t necessarily make them safer. Usually these businesses are “fallen angels” who may have once been successful but have now fallen on hard times and are at risk of failure. In other words, just because a stock has fallen in value, say, from $100 per share to $3, doesn’t mean it’s “value.” Often, companies that experience these kinds of steep drops are on the verge of bankruptcy.

Read more: 4 investing lessons the pandemic has taught us

Another danger of trading penny stocks is that you may not always be able to find a buyer if you want to sell. This is called “liquidity risk,” and it’s a common problem with penny stocks. It’s easy to forget that you can’t sell a stock without a buyer when you’re only dealing in highly liquid blue chip stocks where there are always millions of shares traded every day, but if your penny stock starts to fall and you can’t find someone to unload it on, you may have to drag it all the way down to zero.

And finally, the combination of low liquidity and lack of reporting makes the potential for fraud much higher for penny stocks. Old-fashioned investment schemes like “pump and dump” are much more feasible with penny stocks because it is easier to manipulate share prices in the market.

More from GOBankingRates

John Csiszar contributed reporting for this article.

GOBankingRates bases its rating of the “best” and “best” products on various factors such as commission and account minimum to create a basis for comparison. This rating is an approximation of “best” and “top” designed to help consumers find products that might be right for them. There might also be other options available. Consumers should consider a variety of options tailored to their personal circumstances.

Last update: May 19, 2021

About the Author

Joel Anderson is a business and finance writer with over a decade of experience writing about the broad world of finance. Based in Los Angeles, he specializes in writing about financial markets, stocks, macroeconomic concepts and focuses on helping to make complex financial concepts digestible for the retail investor.

Dolores W. Simon