The Best Online Brokers for Penny Stock Trading

What is a penny stock? A penny stock is defined by the SEC as a low-priced common stock: a stock trading below $5 a share. Penny stocks are generally traded outside the major stock exchanges (such as the Nasdaq or the NYSE) and are traded on what is called the over-the-counter bulletin board (OTCBB) or through pink sheets, a daily publication that lists these stocks.

Both the OTCBB and pink sheets provide ways to trade stocks that do not meet the stringent listing requirements of the major exchanges. Of course, this also means that penny stocks are often far more volatile than your typical stock listed on the NYSE. Overall, because of the high risk associated with penny stocks, NerdWallet does not recommend trading them unless you are a very sophisticated investor and have a clear strategy.

What to watch out for when picking a penny stock broker

  1. Trade commissions and fees: Because many penny stock trades involve a large number of shares, look for a broker that charges a flat commission. This will almost always save you money over the per-share surcharge levied by many brokers. TradeKing, for instance, tacks on an extra $.01 per share for stocks valued under $2, in addition to their standard $4.95 commission. If you trade 500 shares of a stock, this will add $5 to your trade.  Be sure to ask about any additional fees before making a decision, and keep in mind that different brokers have different definitions of penny stock. Some consider anything under $5 a penny stock, while others put the cutoff at $3 or $1.
  2. Volume restrictions: The best penny stock brokers will allow you to trade unlimited shares without additional fees, but a few charge more for large orders. Some brokers also limit the number of penny stock shares you can trade in one order or in one day, forcing customers to pay another commission fee and slowing down their trading strategy.
  3. Trading restrictions: Ideally, your penny stock broker will allow you to trade penny stocks with its online platform, just as you would a standard stock. Keep an eye out for firms that require you to trade penny stocks through a broker, or impose limits on the types of trades you can execute. For example, many brokerages don’t allow customers to short penny stocks, and some don’t trade stocks valued under a certain amount, like $0.05 or $0.01.

Best overall value in trading penny stocks

These brokers combine low pricing with quality execution, research and data tools.

Charles Schwab is the parent company of optionsXpress, so it’s no surprise that these two are neck-and-neck when it comes to trading penny stocks. The two online brokers share similar features, including a large penny stock selection, flat rate trades with no additional fees, and sophisticated trading tools. Key differences: Options trading is much more economical at optionsXpress (as you might expect). But Charles Schwab is more of a full-service brokerage, with a range of commission-free ETFs, transaction-fee free mutual funds, 24/7 customer service and a greater breadth of research.

  • Commission: $8.95 per trade
  • Account minimum: $0
  • Current promotion: Get a $150 Amazon gift card by making a qualifying deposit of $1,000 or more into a new optionsXpress account and placing 10 or more trades within the first 90 days.
  • Read our full optionsXpress review
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  • Commission: $8.95 per trade
  • Account minimum: $1,000
  • Current promotion: Earn 300 commission-free trades with a qualifying net deposit of $50,000 in a new brokerage account.
  • Read our full Charles Schwab Review
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Best for lowest-cost penny stock trades

For investors who prioritize low commissions over all else.

If price is your main concern, Merrill Edge and ChoiceTrade are good options. Merrill Edge has a $6.95 flat commission with no surcharge for penny stocks, though the brokerage has a limited selection and does not allow accounts that are composed entirely of penny stocks. ChoiceTrade adds a $2 penny stock surcharge to its standard $5 trade commission, but even that addition keeps its prices competitive. There are a few drawbacks here, too: The company imposes a volume surcharge of 1% of the trade value for trades over 500,000 shares, and doesn’t allow trades of stocks valued at under five cents.

  • Commission: $6.95 per trade
  • Account minimum: $0
  • Current promotion: Get up to $600 cash when you invest in a new Merrill Edge account. Receive $100 for a $20,000 deposit, $150 for a $50,000 deposit, $250 for a $100,000 deposit and $600 for a deposit of $200,000 or more. Deposit must be made to new account with 45 days of opening.
  • Read our full Merrill Edge review
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  • Commission: $5, plus $2 surcharge for penny stocks
  • Account minimum: $0
  • Read our full ChoiceTrade review
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Best for beginner penny-stock traders

These brokers have educational resources and low minimum account balance requirements.

TD Ameritrade and optionsXpress both offer flat commission structures with no hidden fees. They also have online education centers that will be useful to new traders, as well as $0 account minimum balance requirements. Aside from those similarities, they both have features that will appeal to beginner traders: OptionsXpress offers a lower commission and no extra fee for broker-assisted trades, as well as investing seminars at Schwab branches. TD Ameritrade’s trading platform is stronger and the company has over 100 branches where investors can have questions answered in person.

  • Commission: $9.99 per trade
  • Account minimum: $0
  • Current promotion: Open a new account with $3,000 or more and trade commission-free for 60 days, plus get a cash bonus on larger deposit amounts: $600 on $250,000+; $300 on $100,000 to $249,999; and $100 on $25,000 to $99,999.
  • Read our full TD Ameritrade review
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  • Commission: $8.95 per trade
  • Current promotion: Get a $150 Amazon gift card by making a qualifying deposit of $1,000 or more into a new optionsXpress account and placing 10 or more trades within the first 90 days.
  • Read our full optionsXpress review
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Best platforms for trading penny stocks

These online brokers offer top-notch analytics tools.

Interactive Brokers is a favorite among very active traders for good reason: their Trader Workstation (TWS) platform is streamlined but sophisticated, with everything traders need, including real-time monitoring, research, risk-assessment tools and paper trading accounts to test strategies. There are no limits on penny stock trades, though the brokerage passes on all exchange fees, which can add up quickly and make trading here pricey. Cobra Trading, also for professional and active traders, gives clients access to three different platforms and a large selection of penny stocks, with discounts for high-volume traders. But customers here, too, will pay exchange fees, which can increase trade costs substantially.

  • Commission: $0.005 per share, plus exchange fees. Minimum $1 per order, maximum 0.5% of trade value.
  • Account minimum: $10,000
  • Read our full Interactive Brokers review
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  • Commission: $0.005 per share, plus routing and regulatory fees. Minimum $1 per order. Higher trade values receive discounted commission
  • Account minimum: $30,000 initial deposit, $25,000 minimum account balance
  • Read our full Cobra Trading review
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NerdWallet staff writer Arielle O’Shea contributed to this report.

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