Before we dive into trading platforms, I think it is important to first understand what a penny stock is. The definition of a penny stock, according to the SEC, is any stock that is trading below $5. This makes them appealing to both small and large portfolio investors.
For small portfolios, it allows for more diversification compared to large stocks that are valued at $200 a share, for example. In terms of large portfolios, they can buy a lot more of these cheap stocks which could bring larger profits.
It’s no secret that penny stocks are some of the riskiest equities you can buy. Penny stocks also have a terrible stigma in the public’s eyes thanks to movies like the Wolf of Wall Street. However, what people don’t talk about is that with proper training and experience, penny stocks can be extremely profitable. One of the steps to becoming profitable trading penny stocks is picking the right trading platform.
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Penny Stocks & Trading Fees
Every platform has different trading fee rates. However, thanks to Robinhood, the financial platforms are being pressured into commission-free trading. Big players like TD Ameritrade and Charles Schwab are implementing commission-free trade after having $7 and $5 trading fees, respectively. If you think about it, those trading fees hit very hard when trading penny stocks due to price margins being so low.
Because of these factors, Robinhood has a distinct advantage and appeal to penny stock traders. However, as Schwab and TD move forward, they bring much more advanced charting tools that blow Robinhood out of the water. This is why evaluating the pros and cons of each platform is essential.
Robinhood Penny Stock Trading: Where It Falls Short
The majority of penny stocks are not traded on exchanges like NASDAQ or NYSE. They are mainly on the Over-The-Counter market. This means that whichever platform you decide to use should be more versatile than simply having NASDAQ and NYSE stocks. This is a huge problem for those who trade penny stocks on Robinhood. You cannot trade OTC or Pink Sheets on the platform which eliminates so many potential opportunities.
Remember, penny stocks are risky which is why they are primarily traded on the OTC market. However, the OTC is a lot more developed than one might think. There are different categories within the OTC market and the higher ranks have more requirements that companies must fulfill. This means that there are many companies considered “less-risky” options on the OTC market. Still though, there are considerable risks involved.
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Top Penny Stock Brokers For 2019
There are so many different penny stock brokers that all differ in the services they provide. Since not all platforms encourage penny stock trading, we have weeded those out and have come up with this list. These penny stock brokers include alternatives to the likes of Robinhood, E-Trade and TD Ameritrade.
Penny Stock Broker #1: Ally Invest
The price for trades is just under $4 for more than 30 trades per quarter which is cheaper than a lot of its competitors. The platform also has a wide range of learning tools for new traders that are easy to use. Believe it or not, platforms can be complex due to the number of functions they perform, so this is important.
Penny Stock Broker #2: Charles Schwab
Like previously stated, Charles Schwab’s platform, StreetEdge Smart, has a per trade cost of $5. This increase in price trades off based on the overall simplicity of the design and in-depth features. You can create your own personal penny stock scanners and the platform also provides traders with research reports.
Penny Stock Broker #3: Interactive Brokers
This platform is unique in the sense that is does not charge a flat fee per trade. Instead, Interactive Brokers charges $0.005 per share traded. This is not a typo, it amazingly costs half a cent.
This is particularly good for penny stock traders who do not like to trade with high volumes of stock. This can make costs extremely low.
If you are looking to trade thousands of shares at a time however, Schwab and Ally’s cost structure appears more suitable in the long-run.
Penny Stock Broker #4: Trade Station
Compared to the other penny stock brokers on this list, Trade Station might have one of the best desktop trading experiences around. It has the capability to provide professional-grade functionality to a typical investor’s needs.
Like Schwab, the platform offers RadarScreen, its real-time scanner. Furthermore, it has a fast and reliable trade execution, which is something that Robinhood needs to improve on.
