Best Platforms for Penny Stock Trading

The SEC defines penny stocks as stocks that trade for less than $5. A trader can buy a large number of shares at a relatively low cost, and a change of just a few cents per share can double the value of your investment or more.

On the flip side, however, penny stocks are very risky. This risk is famously portrayed in movies like The Wolf of Wall Street and Boiler Room. These movies and others show how traders can influence stock prices for a profit in “pump and dump” schemes. What's most important to understand is that penny stocks are very, very high risk. That should be taken into account when choosing the best platform for your penny stock trading account to get started in this exciting corner of the market.

Focus on Fees

With penny stocks, it's important to keep a focus on low fees. When buying Google for over $1,000 per share, a $5 fee is a drop in the bucket. However, when you are buying and selling stocks that cost 50 cents per share, a $5 fee for buying and selling adds up to the value of 10 shares. That's a big deal.

Penny stock trading services on this list range from free to around $5 per trade. Some brokers offer per-share pricing, while others offer a flat fee per trade. The brokerage and fee structure you choose to have a noteworthy impact on your profits, so decide carefully.

Access to the Pink Sheets and OTCBB

When looking for a trading platform-specific to penny stocks, you also need to make sure your broker gives you access to the full range of U.S. investments. Because the New York Stock Exchange (NYSE) and Nasdaq have rules against stocks below $1 per share, you'll want to buy and sell over-the-counter (OTC) stocks, which don't trade on the best-known exchanges.

Two exchanges that handle trades for OTC stocks are the Pink Sheets and OTCBB (Over the Counter Bulletin Board). These systems list thousands of stocks that either don't qualify or don't want to go through the hassles to join the big markets. This also means the stocks are ripe for risk, so tread carefully in these waters.

Best Platforms for Penny Stock Trading

Finding a stock broker that will allow you to trade penny stocks may require a bit of research. Some discount online brokerages such as Robinhood don’t support trades made on the OTCBB or Pink Sheets.

I reviewed about a dozen stock trading platforms to come up with our list of the top five options. The best option for you depends on your needs, experience level and projected trading volume, as well as the costs.

Best platform for penny stock trading for beginners: Ally Invest

Ally Invest offers a sweet spot for new penny stock traders looking to find a balance between education tools and cost. It offers $3.95 trades (for more than 30 trades per quarter), an easy-to-use trading platform and extensive resources for new investors looking to learn more.

Charles Schwab is another great choice for newer investors, as it offers extensive research reports on a wide range of stocks and other securities. It costs a bit more, but you get what you pay for.

TradeStation and Interactive Brokers are both better for more experienced traders.

Best platform for penny stock trading based on technology: TradeStation

All of the brokerages on this list give you the option to trade from your mobile device or your computer, but the most powerful trading experience comes from desktop platforms. Of the penny stock platforms here, TradeStation, Interactive Brokers and Charles Schwab offer the best desktop platforms.

All three offer platforms that give you access to news, trends, market data and trade tools with just a few clicks. Depending on your trading setup, your desk might look more like Wall Street than Main Street. TradeStation brings out the best balance between professional power tools and what a regular active investor needs.

Schwab's StreetSmart trading platform is good for new to experienced traders or those who just enjoy the Schwab platform. Interactive Brokers is best for experienced traders looking to add serious professional power to their trading workflow.

Best platform for penny stock trading based on cost: Interactive Brokers

If your main concern is keeping the costs of your trades low, you have a few options. If you’re trading only a relatively few shares of your penny stock, Interactive Brokers is the best option. Rather than being charged a flat fee per trade, you can buy and sell with per-share pricing. This platform charges only 0.5 cents (that’s half a cent) per share.

TradeStation is also a good choice; it charges only 1 cent per share. However, keep in mind that volume discounts, minimums and maximums apply.

On the other hand, if you’re buying, for example, a thousand shares of your penny stock, you will likely want a more traditional brokerage with a flat fee. Charles Schwab and Ally Invest charge a base fee of $4.95 per trade. However, with a volume discount for traders with more than 30 trades per quarter, Ally Invest fees drop to $3.95 per trade.

Find the Right Penny Stock Platform for Your Needs

Everyone has different goals and a different background. There is no perfect stock brokerage for anyone, but if you are looking to start with penny stocks, any of these five platforms should serve you well.