BEST OF

8 Best Brokers for Penny Stock Trading of March 2021

Kevin VoigtFebruary 17, 2021
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Penny stocks are risky investments, though they don’t actually cost a penny. They are shares of small companies — also known as microcap stocks — that trade outside of major stock exchanges, and brokerages may charge additional fees to trade these often volatile shares.

Some brokers add a surcharge to stocks that are valued at less than a certain dollar amount, or don't extend their free commission offers to unlisted stocks. The definition of penny stocks will also vary by broker. Some consider anything trading under $5 to be a penny stock, while others put the cutoff at $2 or $1.

For the purposes of this roundup, we limited our selection only to brokerages that give traders full access to over-the-counter (OTC) stocks on the OTC Bulletin Board.  (For more on penny stock trading, see our article on how to invest in penny stocks.)

Penny stocks may seem like a steal when stacked against companies that trade for $500 or more. This is where the backstory is important: These stocks are cheap for a reason. Because they are issued by small, yet-to-be-established companies, penny stock values can be turbulent. They are often hard to research and accurately value, and they trade infrequently, which means they can be tough to sell.

Because of less stringent financial disclosure requirements, penny stocks are more susceptible to “pump and dump” schemes, where traders talk up the value of a stock only to “dump” it at artificially inflated prices. (In an effort to discourage this practice, the  U.S. Securities and Exchange Commission issued new rules in September 2020 to prevent brokers from quoting OTC stocks unless companies issuing shares release up-to-date financial information.)

Bottom line, there are plenty of other ways to expose your portfolio to stocks without ponying up a high share price — here are a few suggestions.

Choosing a penny stock broker

In case the above didn’t make this clear: NerdWallet does not recommend taking on the risks that come with trading penny stocks unless you are a sophisticated investor and you understand this market. You'll also want to be aware of the following when selecting an online broker to trade penny stocks:

Volume restrictions: Besides trade surcharges, there may be volume restrictions. Some, such as Fidelity or Firstrade, offer unlimited shares without additional fees, but a few charge more for large orders. For example, TradeStation's $0 commission applies to trades of 10,000 shares or less. Some brokers also limit the number of penny stock shares you can trade in one order or in one day, slowing your ability to trade and forcing you to pay another commission for a second order.

Trading restrictions: Watch out for firms that require you to trade penny stocks by placing a phone order or that impose limits on the types of trades you can execute. Ideally, your penny stock broker will allow you to trade penny stocks with the same online platform used for other stock trades.

Below are NerdWallet’s top brokerages for penny stock traders. You'll notice that many of these brokers also appear on our list of the top online brokers for stock trading; they're all well-rounded brokers that also offer a uniquely strong suite of features for penny stock trading.

Summary of Best Brokers for Penny Stock Trading of March 2021

Interactive Brokers IBKR Pro

on Interactive Brokers's website

Interactive Brokers IBKR Pro

5.0

NerdWallet rating 
Interactive Brokers IBKR Pro

Fees

$0.005

per share; as low as $0.0005 with volume discounts

Account Minimum

$0

Promotion

Exclusive!

0.25% reduction on margin loans. Tiers apply

on Interactive Brokers's website


Promotion

Exclusive!

0.25% reduction on margin loans. Tiers apply

Why we like it

Interactive Brokers attracts active traders with per-share pricing, an advanced trading platform, a large selection of tradable securities — including foreign stocks — and ridiculously low margin rates.

Pros

  • Per-share pricing.

  • Volume discounts.

  • Large investment selection.

  • Extensive tools for active traders.

  • Powerful trading platform.

  • NerdWallet users who sign up get a 0.25 percentage point discount on margin rates.

Cons

  • Complex pricing on some investments.

  • Inactivity fees.

  • Website is difficult to navigate.

Read Full Review
Firstrade

on Firstrade's website

Firstrade

4.0

NerdWallet rating 
Firstrade

Fees

$0

per trade

Account Minimum

$0

Promotion

Up to $200

in Transfer Fee Rebates

on Firstrade's website


Promotion

Up to $200

in Transfer Fee Rebates

Why we like it

In addition to free stock and options trading, Firstrade charges no commission for mutual funds, a deal no other broker matches. Options traders will appreciate that the broker charges no contract fee, also a rarity among brokers.

Pros

  • Commission-free stock, ETF and options trades.

  • $0 contract fee on options trades.

  • All mutual funds are commission-free.

  • Chinese language options.

Cons

  • No 24/7 customer support.

Read Full Review
TradeStation

on TradeStation's website

TradeStation

4.0

NerdWallet rating 
TradeStation

Fees

$0

per trade

Account Minimum

$0

Promotion

Up to $5,000

cash credit with a qualifying deposit

on TradeStation's website


Promotion

Up to $5,000

cash credit with a qualifying deposit

Why we like it

TradeStation is a strong choice for active stock, options and futures investors who rely on the broker’s high-octane trading platform, reams of research and sophisticated analytical tools. Trades of up to 10,000 shares are commission-free.

Pros

  • High-quality trading platforms.

  • Comprehensive research.

  • Commission-free stock, ETF and options trades.

  • Advanced tools.

  • Active trader community.

Cons

  • Free trading on advanced platform requires TS Select.

  • No transaction-fee-free mutual funds.

  • Plans and pricing can be confusing.

Read Full Review
Zacks Trade

on Zacks Trade's website

Zacks Trade

4.5

NerdWallet rating 
Zacks Trade

Fees

$0.01

per share

Account Minimum

$2,500

Promotion

None

no promotion available at this time

on Zacks Trade's website


Promotion

None

no promotion available at this time

Why we like it

Zacks is a great choice for experienced and active investors who would appreciate a little extra support from a representative, but trades cost more than at competitors.

Pros

  • Ample research offerings.

  • Robust trading platform.

  • Access to international exchanges.

Cons

  • Trails competitors on commissions.

  • High account minimum.

Read Full Review

Want to compare more options? Here are our other top picks:

If you’re still on the fence about penny stocks, learn more about some of your other investment options:

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

Last updated on February 17, 2021

Methodology

NerdWallet’s comprehensive review process evaluates and ranks the largest U.S. brokers and robo-advisors by assets under management, along with emerging industry players, using a multifaceted and iterative approach. Our aim is to provide an independent assessment of providers to help arm you with information to make sound, informed judgements on which ones will best meet your needs.

DATA COLLECTION AND REVIEW PROCESS

We collect data directly from providers, and conduct first-hand testing and observation through provider demonstrations. Our process starts by sending detailed questionnaires to providers to complete. The questionnaires are structured to equally elicit both favorable and unfavorable responses from providers. They are not designed or prepared to produce any predetermined results. The questionnaire answers, combined with product demonstrations, interviews of personnel at the providers and our specialists’ hands-on research, fuel our proprietary assessment process that scores each provider’s performance across more than 20 factors. The final output produces star ratings from poor (one star) to excellent (five stars). Ratings are rounded to the nearest half-star.

RATING FACTORS

Evaluations vary by provider type, but in each case are based upon the weighted averages of factors that include but are not limited to: advisory and account fees, account minimums and types, investment selection, investment expense ratios, trading costs, access to human financial advisors, educational resources and tools, rebalancing and tax minimization options, and customer support including branch access, user-facing technology and mobile platforms.

Each factor can involve evaluating various sub-factors. For instance, when gauging the investment selections offered by robo-advisors, 80% of the score is based on the potential for diversification (how well-diversified a resulting portfolio of investments could be) combined with the availability of specialty portfolios and level of customization for investors. Expense ratios form an additional 10% of the score, and low or no management fee the remaining 10%.

FACTOR WEIGHTINGS

The weighting of each factor is based on our team’s assessment of which features are the most important to consumers and which ones impact the consumer experience in the most meaningful way. The factors considered, and how those factors are weighted, change depending upon the category of providers reviewed.

Provider categories include: Best Brokers for Stock Trading, Best Brokers for Beginners, Best Brokers for Day Trading, Best Brokers for Options Trading, Best Discount Brokers, Best Brokers for Free Trading, Best Investment Apps, Best Brokers for Penny Stocks, Best IRA Brokers, Best Robo-Advisors, Best Financial Advisors, Best Real Estate Platforms, Best Brokers for ETFs and Best Brokers for Mutual Funds.

INFORMATION UPDATES

Writers and editors conduct our broker and robo-advisor reviews on an annual basis but continually make updates throughout the year. We maintain frequent contact with providers and highlight any changes in offerings.

THE REVIEW TEAM

The review team comprises seasoned writers, researchers and editors who cover stocks, bonds, mutual funds, index funds, exchange-traded funds, alternative investments, socially responsible investing, financial advisors, retirement and investment strategy on a daily basis. In addition to NerdWallet, the work of our team members has been published in The New York Times, The Washington Post, Forbes, USA Today, Bloomberg News, Nasdaq, MSN, MarketWatch, Yahoo! Finance and other national and regional media outlets.

The combined expertise of our Investing team is infused into our review process to ensure thoughtful evaluations of provider products and services from the customer perspective. Our writers and editors combine to have more than 70 years of deep experience in finance, ranging from a former Wall Street Journal reporter to a former senior financial advisor at Merrill Lynch.

CONFLICTS OF INTEREST

While NerdWallet does have partnerships with many of the reviewed providers, we manage potential conflicts of interest by maintaining a wall between our content and business operations. This wall is designed to prevent our writers and the review process from being influenced or impacted by our business partnerships. This way, all reviews can provide an unbiased review that serves the interests of our users. For more information, see NerdWallet’s editorial guidelines.

To recap our selections...

NerdWallet's Best Brokers for Penny Stock Trading of March 2021