Highly volatile and often priced at a dollar or less, penny stocks present a higher-risk, higher-reward investment opportunity for those willing to take the chance. Some of these stocks can be found trading under $5 per share and are available on major exchanges like the NYSE and Nasdaq Composite, while others trade over the counter (OTC).
Due to the complexity and risk involved in penny stock investing, conducting thorough research and having the right tools at your disposal becomes crucial. Richard Gardner, CEO at Modulus Global, emphasizes the need to understand how trading works and to gain insights into the financials and business models of potential investment companies.
To make the process of penny stock trading more manageable, it is essential to identify online brokerages that offer specialized support for such trades. These brokerages may offer features like commission-free trading, absence of additional surcharges for penny stocks, charting tools, and fast order execution, among others.
Our ranking of the best online brokers for penny stocks involved a comprehensive assessment of multiple trading platforms. Factors considered included the range of offerings, advisory services, educational and research resources, insurance coverage, features available, portfolio analytics capabilities, trading costs, margin interest rates, customer service, and security. We used OTC as a proxy to determine the services tailored for trading penny stocks.
Compare the best online brokers
| BROKER | OTC STOCK FEE | OTC STOCK MINIMUM TRADE REQUIREMENT |
|---|---|---|
| Interactive Brokers | 0.50% | $0.00 |
| E-Trade | $6.95, reduced to $4.95 for customers who execute at least 30 trades per quarter | $6.95 |
| TD Ameritrade | $6.95 | $6.95 |
| Fidelity | $0.00 | $0.00 |
| Charles Schwab | $6.95 | $6.95 |
| Merrill Edge | $0.00 | $0.00 |
| Ally Invest | $4.95 plus $0.01 per share, subject to a maximum commission charge of 5%. | $100 |
Methodology
Researching and evaluating various online brokerages in the U.S. has allowed us to compile a ranking of the best options currently available in the market. To gather data for our rankings, we conducted a digital survey comprising over 70 queries, which we sent to each company under review. Our researchers meticulously verified the survey data and filled in any missing information through direct communication with the companies and extensive online research.
From the brokerages considered, we identified seven that stood out in excelling across ten major categories, each with its own specific weightage. These categories include the range of offerings, trading costs, account minimum and fees, features, advisory services, insurance, customer service, education/research, security, and portfolio analysis.
For a comprehensive evaluation, we further assessed several subcategories within each major category, combining the data to calculate an overall score for each category. These scores were then weighted to determine the final ranking of the exchanges. The scoring system ranged from 0.00 to 1.00, and the highest score was 0.79, which we converted into a 5-star rating as the maximum achievable score.
Regarding the range of offerings, we examined whether each brokerage provided a diverse selection of investment options, including stocks, bonds, mutual funds, exchange-traded funds, options, forex trading, futures, international stocks, fractional shares, cryptocurrency, and over-the-counter stocks.
Trading costs, which encompassed commissions, were evaluated comparatively. Variables considered for trading costs were the stock commission, ETF commission, options commission (with discounts for options trading), futures commissions (fee to open/close), and over-the-counter stock fees (with minimum balance requirements). Additionally, broker-assisted commissions were also taken into account.
In the account minimum and fees category, we considered various variables such as new account bonuses, free ACH deposits/withdrawals, inactivity fees, account closure fees, transfer account fees, domestic wire fees, international wire fees, and the ability to deposit with a bank card.
Finally, we reviewed each brokerage’s insurance offerings, assessing whether they provide Federal Deposit Insurance Corp. and Securities Investor Protection Corp. protections, as well as additional asset protections and insurance coverage.
Why other online brokers didn’t make the cut
Brokerage platforms that fail to meet the cutoff score are excluded from our penny stock-friendly platform ranking. To determine the best brokers for penny stocks, we consider factors such as trading costs, education and research resources, account minimums and fees, customer service, and features.
Trading costs are of particular importance in penny stock investing, as excessive commissions or surcharges can negatively impact overall returns. Finding a brokerage with a fee structure that aligns with your trading strategy is crucial, especially considering many brokerages charge special fees on penny stock trading.
Educational and research resources play a vital role in penny stock trading due to the inherent risk involved. Brokerages focus on educating their clients and providing comprehensive research capabilities to help them make informed decisions.
Account minimums and fees are another significant factor, particularly for penny stock investors aiming to minimize unnecessary costs.
Customer service is also given considerable weight in our rankings. Given the complexities of penny stock trading, investors require prompt and professional assistance available 24/7 through various channels.
Final verdict
Best Online Brokerage Platform for Penny Stock Investing in 2023: IBKR emerges as the top choice according to our methodology, scoring highest at 5.0.
IBKR’s Strengths in Breadth and Pricing: IBKR distinguishes itself in terms of both breadth and pricing. It offers access to multiple exchanges, including OTC markets, along with advanced charting, technical analysis tools, and real-time market data on its web-based client portal and Trader Workstation.
Competitive Pricing and Transparent Structure: One of IBKR’s major advantages is its tiered pricing options, which can lead to significant savings for penny stock investors with sufficient monthly volume. The brokerage firm is highly transparent, clearly outlining other third-party fees such as regulatory, exchange, pass-through, and clearing fees.
Additional Features and Versatility: Beyond its exceptional penny stock capabilities, IBKR remains a solid brokerage platform with a host of additional features. It stands out with no account minimums or account transfer fees, offers a robust online educational suite with in-house courses, and grants access to a wide range of securities, including forex, futures, and options.
