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Penny stocks, which trade over the counter (OTC) for less than $5 per share, get their name from the fact that, at one point, they were valued at less than $1 per share. Because penny stocks trade at low prices, often for many shares at a time, the brokerage and trading costs associated with trading them become very important, because per-share pricing can become expensive. In addition to the all-important cost of trading penny stocks, customers look for a penny stock broker that offers other features, such as advanced charting and stock screeners.
After hundreds of hours of comprehensive research, data analysis, and live broker platform demos, Fidelity offers the best combination of research, free OTC trading, education, execution, and more, to meet the needs of all levels of penny stock traders. Fidelity is just one of 26 online brokers that we evaluated based on 89 criteria, including research amenities, account services, user experience, and additional features.
Best Brokers for Penny Stocks of 2024
- Best Overall: Fidelity Investments
- Best for Low Costs: Fidelity Investments
- Best for Risk Management: Interactive Brokers
- Best for Advanced Traders: Interactive Brokers
- Also Great for Advanced Traders: TradeStation
- Best for Novice Penny Stock Investors: Charles Schwab
- Best for Mobile: E*TRADE
- Best for Ease of Use: E*TRADE
Best Overall, Best for Low Costs: Fidelity
- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trades
Why We Chose It
Best Overall
Fidelity offers its customers access to free over-the-counter market trading and multiple asset classes, some of the best research in the industry, a broad array of tools and features, and an easy-to-use platform that allows users to manage their entire portfolio in one place.
Best for Low Costs
Fidelity offers free OTC market stock trading. Other brokers usually charge some type of fee for trading the over-the-counter market, but Fidelity does not. It’s hard to beat free and Fidelity provides it, along with free stock and ETF trading, too.
Pros & Cons
No fees or commissions to trade OTC stocks
Trade OTC stocks on the same platform as other stocks and ETFs
Top-tier stock screeners
Excellent platform for all types of users
Not available to customers living outside of the U.S.
High margin rates compared to other brokers
Limited cryptocurrency offerings
No futures or options on futures
Overview
Fidelity, founded in Boston in 1946 and still a family-owned business, is one of the largest U.S. brokerage companies, with more than 50 million individual investors, $13.7 trillion under administration, and $5.3 trillion in discretionary assets. The company provides access to most asset types, including both domestic and international stocks, ETFs, mutual funds, options, crypto, fixed income, and the OTC market.
Investopedia’s top choice for best broker overall and best full-service investment app, along with a host of other categories, Fidelity offers a full suite of accounts and services, including robo trading, banking features, and a wide range of helpful tools for analyzing securities and your portfolio. Fidelity offers access to OTC stocks on the same platform as other stocks and exchange-traded funds (ETFs), and there is no charge for trading over-the-counter stocks on Fidelity, making it a very attractive broker for over-the-counter stock trading.
Best for Risk Management, Best for Advanced Traders: Interactive Brokers
- Account Minimum: $0.00
- Fees: $0.00 commissions for equities/ETFs available on IBKR’s TWS Lite, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Lite; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures, also scales with volume for TWS Pro users. 0.12%-0.18% on cryptocurrency trades depending on volume with a minimum $1.75 fee per trade.
Why We Chose It
Best for Risk Management
The trading platforms at Interactive Brokers (IBKR) have a great range of tools and available assets for managing risk, and real-time position updating and margin calculations help traders maximize their opportunities when trading over-the-counter stocks. Further, IBKR’s tools allow traders to automate the management of their positions.
Best for Advanced Traders
IBKR is our choice for advanced traders because of the industry-leading tools available for traders to automate their trading strategies. Traders on IBKR can trade directly from charts and see their positions and orders on charts. In addition, they can use screeners to identify stocks and sophisticated tools to manage their orders exactly how they want, including trading triggers that use technical or fundamental information.
Pros & Cons
Unparalleled market access to trading products across the globe
Superior trading technology
Low margin rates
Fair rate of interest on cash balances
IBKR Lite and Pro customers pay commission on over-the-counter stock trading
Trader Workstation (TWS) demands a steep learning curve
Customers at all levels pay regulatory fees
Complex commission schedule for IBKR Pro clients
Overview
Interactive Brokers (IBKR), headquartered in Greenwich, Connecticut, is the platform of choice for sophisticated traders because of its industry-leading tools and trading technology, as well as its impressive offering of global assets. It is a publicly traded company with more than 2.56 million accounts and more than 2,950 global employees. Interactive Brokers is the broker of choice for institutional investors and high-volume traders because of its low commissions, superior trading technology, and breadth of offerings. The company gives traders unparalleled access to markets around the world; no other broker even comes close to offering the number of markets and trading vehicles as IBKR.
Trading penny stocks at IBKR is not free, but it is cost-effective, especially for people who want a strong technology platform, the ability to automate, and full control over their trading. The most active traders want the ability to have great control over their OTC orders because it is such an illiquid market that can see big swings in price discovery. Customers have the ability to manage orders with great specification, including sophisticated tools for managing positions and, for IBKR Pro clients, the ability to route their own trades. Further, IBKR offers strong stock screeners, has low margin rates and a real-time margin calculator, supports fractional shares, allows for tax-lot selection, and provides portfolio management tools.
Also Great for Advanced Traders: TradeStation
- Account Minimum: $0
- Fees: $0 stocks and ETFs; options are $0.25/contract, and futures are $1.50/contract ($0.50 for micro e-minis)
Why We Chose It
TradeStation is a robust platform for active traders, and the platform’s functionality has very capable tools for OTC stock trading, such as real-time market scanners, advanced order types, and the ability to automate strategies. While TradeStation charges commissions for OTC trading, the platform and its tools are excellent, and the commissions are very reasonable.
Pros & Cons
Excellent trading platform with a great set of tools and features for active traders
Competitive pricing, even though there is a commission for trading OTC stocks
Dynamic, real-time stock scanners based on more than 180 technical and fundamental indicators
Ability to automate trading strategies
Intra-day margin of 25% provides additional leverage
A sophisticated platform with a steep learning curve
Margin rates are relatively high, at 13.5% or 12.5% on account balances up to $500,000
Low interest paid on cash balances, and only on balances above $100,000
Slow customer support answer times
Overview
TradeStation was established in 1982 as Omega Research, Inc., and launched its flagship TradeStation desktop charting and trading software in 1991. The company went public with an IPO on the Nasdaq market in 1997. TradeStation was an early online brokerage opportunity for many traders, and it has continued to innovate and produce excellent tools and features on its platform.
Features including robust charting, an excellent real-time stock scanner, the ability to calculate margin in real time, and a sophisticated order entry system that can be customized by the user are all tools that will benefit an OTC trader. Through the company's TS Select plan, penny stock trades are $0 for the first 10,000 shares and $0.005 per share after that (an additional $0.005 per share is charged if you direct the order to a specific venue).
Best for Novice Penny Stock Investors: Charles Schwab
- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0.65 per contract for options
Why We Chose It
A novice penny stock investor will almost definitely be investing or trading in other markets. This makes Schwab a good choice because the company has a wide range of offerings, helpful tools, and excellent educational materials and support to help you learn about the OTC market for stocks.
Pros & Cons
Excellent educational materials and support for those new to OTC trading
Good stock scanners and charting
Free news feeds
Different platforms for different types of traders
High margin rates
Fixed OTC commission could be high, depending on the number of shares traded
Very low interest paid on cash balances
Overview
Charles Schwab started an investment newsletter in 1963, established broker-dealer operations in 1971, and changed its name to Charles Schwab & Co. in 1973. Schwab was established after brokerage commissions were deregulated in 1975 and was one of the first discount brokers. Today, the company is massive, especially after acquiring TD Ameritrade in 2020; it has $8.8 trillion in client assets and 35.4 million brokerage accounts.
While the company charges a flat commission of $6.95 per OTC trade, the cost is not unreasonable, especially if someone is just starting out trading OTC stocks. Schwab is designed to help traders at all levels. It has a variety of platforms, including the popular thinkorswim platform that the company absorbed with the acquisition of TD Ameritrade. In addition, Schwab’s educational content is unmatched, making it easy for customers to learn about different investing topics. This makes Schwab an excellent place to learn about OTC stock trading. Combine all of this with Schwab’s screening capabilities and you’ve got a top platform for handling the needs of novice OTC traders.
Best for Mobile, Best for Ease of Use: E*TRADE
- Account Minimum: $0
- Fees: No commission for stock, ETF, and mutual fund trades. Options are $0.50-$0.65 per contract, depending on trading volume.
Why We Chose It
Best for Mobile
E*TRADE is our pick for best mobile app for investors and traders, and this ease of functionality is consistent for OTC stock trading, too. E*TRADE provides a mobile app for less sophisticated investors and a more robust version for sophisticated traders.
Best for Ease of Use
E*TRADE has best-in-class mobile apps and desktop trading platforms that are all well-designed and easy to use, and this experience translates to penny stock trading.
Pros & Cons
Well designed, intuitive platforms
Strong tools and stock screeners helpful with OTC trading
Good educational materials
Relatively high margin rates
Fixed OTC commission could be high, depending on the number of shares traded
Low interest paid on cash balances
No fractional shares outside of robo portfolios
No cryptocurrencies
Overview
E*TRADE, founded in 1992 in Palo Alto, California, was one of the first all-electronic brokerage companies. E*TRADE began internet trading with the launch of E*TRADE.com in 1996. Morgan Stanley purchased E*TRADE, completing the merger in 2020. The company operates as one of the largest online brokers in the country, providing an expansive list of investment choices and trading tools to its U.S. customer base. In addition to the company’s highly regarded web and desktop platforms, the E*TRADE Mobile and Power E*TRADE apps offer both Apple and Android users an intuitive, highly responsive, and feature-rich experience.
While E*TRADE’s commissions for OTC trading are higher than at some other institutions, assuming the trade size is large enough, the commission should not be too high to dissuade investors from trying OTC stock trading on its platform. However, it is likely that more active OTC traders will gravitate from E*TRADE to a lower-cost option.
The Bottom Line
Investors and traders have the option to trade over-the-counter stocks on multiple platforms. We have identified some of our favorite platforms for OTC trading and determined that Fidelity is the best choice because it offers an industry-leading full serverice brokerage experience while not charging any commission or fee for OTC trades. For sophisticated investors trading very high volumes, Interactive Brokers and TradeStation are the best options. E*TRADE and Schwab offer access to penny stock and both companies charge a flat fee for OTC trades that may be okay when just starting out, but would be likely to have an active OTC trader looking elsewhere for a less expensive broker.
Research Insights
When selecting a brokerage platform for trading penny stocks, investors should prioritize cost-effectiveness, platform reliability, and access to robust research tools. Penny stock trading often involves frequent transactions, so finding an app with low or zero commission and fees that are transparent is essential to avoid eroding potential profits.
Platform reliability is another critical factor. Penny stocks can be highly volatile, and swift trade execution is necessary to capitalize on price movements. A reliable platform with fast execution speeds and minimal downtime ensures that traders can act quickly on market opportunities.
Access to robust research tools is equally important for penny stock traders. Advanced charting capabilities, real-time market data, and comprehensive stock screeners can help investors identify potential trading opportunities and make informed decisions. Educational resources and market analysis can further enhance a trader's ability to navigate the complexities of penny stock trading. By focusing on low costs, platform reliability, and advanced research tools, investors can select a brokerage platform that supports effective penny stock trading and maximizes their potential for success. - Amrut Deshmukh, Investopedia Research Analyst
What Are Penny Stocks?
Penny stocks are smaller companies that trade for less than $5 per share. Often, as the name implies, shares in these companies can trade for less than $1, or pennies. There are a small number of penny stocks that trade on the regulated US exchanges, but most penny stocks trade through the OTC or the private entity OTC Markets Group. Penny stocks not traded on exchanges are not regulated by the exchange, or even the SEC.
Penny stocks, therefore, are seen as risky assets because they are typically small companies that do not attract institutional capital. This can result in illiquid stocks with wide bid-offer spreads and bad order execution. In addition, penny stocks are often companies that represent risky investments because their funding prospects and general business are unproven, and there is often less information available about the companies because they do not have to follow the same stringent reporting requirements as exchange listed stocks.
Further, because of their nature, penny stocks are much more susceptible to stock manipulation. Many penny stocks end up going out of business, but ones that succeed can show investors who bought at good levels with very high returns, often on a large number of shares. Also, since penny stocks typically trade at lower trading prices, even small price increases can result in nice percentage gains, but this double-edged sword also applies when the stock moves lower.
What Is the Best Broker for Penny Stocks?
The best broker for penny stocks is the broker that provides access to a wide range of OTC-trade stocks and can keep overall costs low. Because penny stocks often trade for low dollar amounts and people who buy them want to own a large number of affordable shares, differences in price because of illiquidity or brokerage fees can make a big difference in the overall returns on a penny stock.
Since trading costs, such as commissions and processing fees, are the primary determinants for a good penny stock broker, we chose Fidelity as our top overall broker for penny stocks because of its low fees and the availability of penny stocks to trade on its platform.
How to Buy Penny Stocks
Buying penny stocks is pretty straightforward in regards to opening an account, but it is important to research the costs because they can add up quickly if paying a per-share commission. Once you are ready to move forward, your remaining steps include the following:
Step 1: Determine if penny stock trading is right for you. It’s important to evaluate whether trading in penny stocks is appropriate for your capital position and risk tolerances by learning about the trading vehicle and the risks and benefits of trading penny stocks.
Step 2: Research different online brokers. It is critical to research top online brokers to see which offer the best pricing and platforms on which to trade penny stocks—which are risky, often illiquid, and typically involve a large number of shares per transaction. In addition to pricing, traders/investors may also want certain tools, such as penny stock screeners and charting functionality.
Step 3: Open an online brokerage account. Once you’ve decided on an online broker that fits your penny stock trading needs, take the next step of opening an account. There is, as with all U.S. brokers, both a know-your-client (KYC) and anti-money laundering (AML) process associated with the account opening process.
Step 4: Obtain access to the right trading platform. While most platforms have penny trading integrated into their regular trading platforms, some brokers require a stand-alone platform for penny stock trading.
Step 5: Fund your account. Once the application is approved, you will be given the opportunity to transfer funds from your bank accounts into your brokerage account. You will need the bank name, the routing number, and the account number. If you don’t feel comfortable providing this information online, the brokerage will likely give you the option of sending funds via wire transfer, though there is a charge for that service.
Step 6: Start trading in your account. Once your account is funded and you've received access needed to trade OTC securities, you can begin trading. For beginners, it is advised that you start by practicing your penny stock trading strategies by using a demo account. This will help you experience some of the extreme volatility issues that are often associated with trading penny stocks first hand.
Are Penny Stocks Worth It?
While it is possible to make money with penny stocks, and some prefer playing with large share volumes on very low-priced stocks, most professionals would say penny stocks are not as good an investment, or even trading vehicle, than other investments such as listed stocks. Listed stocks provide potential investors with SEC-mandated updates and full transparency, and some of these stocks pay dividends in addition to the opportunity for price appreciation.
Penny stocks, on the other hand, do not have the same reporting requirements, are often illiquid, and are susceptible to manipulation. Even though some people win the lottery, which has a very high payout relative to the cost of the ticket, the odds and payouts for winning does not come remotely close to the risk undertaken. So, while penny stocks are right for some people, they are not an appropriate market vehicle for the majority of investors and traders.
How We Chose the Best Brokers for Penny Stocks
Providing readers with unbiased, comprehensive reviews of online brokers and trading platforms is a top priority for Investopedia. We combined our industry research, subject matter expertise, and investor survey data to guide the research and weightings for our 2024 online broker awards. To collect the data, we sent a digital survey with 110 questions to each of the 26 companies we included in our rubric. Additionally, our team of researchers verified the survey responses and collected any missing data points through online research and conversations with each company directly. The data collection process spanned from Feb. 19 to March 19, 2024.
We then developed a proprietary model that scored each company to rate its performance across 11 major categories and 89 criteria to find the best online brokers and trading platforms. The score for each company’s overall star rating is a weighted average of the criteria in the following categories:
Additionally, during our 2024 research, many of the companies we reviewed gave us live demonstrations of their platforms and services via video conferencing methods and also granted our team of expert writers and editors access to live accounts so they could perform hands-on testing.
Through this all-encompassing data collection and review process, Investopedia has provided you with an unbiased and thorough review of the top online brokers and trading platforms.
Learn more about how we review online brokers.