Penny stocks offer promising opportunities to investors. The right tools and knowledge are required for success.
The World of Penny Stocks
First and foremost, like all other investments, penny stocks have their own set of risks. It is important to understand that over-the-counter stocks (OTC), the other name for penny stocks, do not actually cost a penny. As defined by the Securities and Exchange Commission (SEC), penny stocks are considered those trading at a value lower than $5 per share.
Over time, many of them will be future behemoths in their respective fields. Market knowledge and strong technical analysis skills are required to find winners.
OTC stocks are traded outside the main stock exchanges and are listed on Pink Sheets, now known as the OTC Markets Group. You’ll also find them on the OTC Bulletin Board. The Pink Sheets marketplace is a repository of some 10,000 stocks. The OTC Markets allows online brokers to facilitate trading for the investor.
You’ll often find that penny stocks are difficult to sell as they will infrequently trade.
The Best Penny Stock Brokers
Here are our picks of the best penny stock brokers this year. If you intend to keep the costs on the low end, we recommend choosing Charles Schwab or Interactive Brokers. While Schwab charges a $4.95 flat commission rate, this shouldn’t be much if you are looking out to purchase lots of penny stocks. On the other hand, Interactive Brokers charge a rate of 0.5 cent per share and there is no surcharge. However, there’s a $10,000 account minimum value along with the monthly minimum commission of $10.
Schwab is a great broker in the penny stock space. It will facilitate the trading of a large selection and does not have any surcharge. The service is superior indeed. Similarly, Fidelity Investments also charge a flat commission of $4.95.
TD Ameritrade is well-known for its think-or-swim platform. The commission is higher at $5.95 per trade. We also recommend using the Trade Architect platform when you are just starting out in penny stock trading.
Last but not least, TradeStation offers lower commission rates if you choose the per-share pricing options. This is one of the best brokers for the more experienced penny stock traders out there.
How To Choose Penny Stock Brokers
There are some factors you need to consider when choosing penny stock brokers. First, notice if their volume restrictions satisfy your trading needs.
While many brokers allow you to trade without restrictions and additional fees, some might charge heftier fees for large orders.
Furthermore, consider the trade surcharges. Beware some brokers add surcharges to stock transactions. Therefore, it is best to choose ones that charge flat commissions.