Where to Buy Penny Stocks

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If you’re interested in investing in penny stocks, you are well aware that your options are vast. Indeed, there are new companies being added to the stock exchanges on a regular basis; they join the array of small companies already being publicly traded on the stock exchange. Moreover, with the success of forex, crypto, and other financial products, there is an increasing number of brokers emerging these days as well. Therefore, if you are interested in investing in penny stocks, you should do your research before choosing which platforms to invest your money. Here is a closer look at some of the top OTC brokers from which to buy penny stocks.

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What is an OTC Broker?

For those yet unfamiliar, an OTC Broker is a broker that offers Over-the-counter (OTC) securities or securities that are not listed on a major exchange in the United States. These brokers are broker-dealer networks that provide access to stocks from smaller companies that do not meet the requirements to be listed on a formal exchange. This can be due to the fact that they wish to keep financial information private, they cannot meet the various requirements and other regulatory-related issues.

7 Best OTC brokers for Penny Stocks

Are you looking for the best platforms for penny stocks? Here are 7 of the best in no particular order:

Interactive Brokers

Although it's one of the most costly platforms on the list (with charges of $1 minimum per trade and per-share prices that start at $0.0035), Interactive Brokers is a very worthwhile broker for those interested in penny stocks. Not only is it a great platform overall, but Interactive Brokers is a great platform no matter what you want to trade.

Moreover, Interactive Brokers offers one of the vastest ranges of short-able penny stocks available. Considered one of the best platforms for risk-takers, it is highly possible to earn lots of money when investing in the various penny stocks available on Interactive Brokers.

TradeStation

If you’re interested in a data-heavy platform to make your penny stock trading. This is because TradeStation offers an abundance of technical information that can be highly useful to penny stock traders. Moreover, they also provide a service that’s hard to come by, real-time OTC stock prices, a service that many other platforms don’t offer.

Moreover, the platform is highly customized, allowing investors to build the perfect trading environment for their needs. TradeStation is also highly cost-effective, offering a wide array of reasonably priced penny stocks.

E*TRADE

E*TRADE is one of the best brokers in terms of all-around trading platforms on the web. Offering a simple-to-use platform with plenty of educational resources that enable new users an opportunity to learn the ropes easily, E*Trade is great for beginners.

Additionally, this highly user-friendly platform is simple to navigate. This allows newer investors to learn more about the products they are investing in rather than the system itself.

Cobra Trading

Cobra Trading has been in existence since 2003. A highly personable platform, Cobra Trading offers speedy customer service, allowing users to receive sound advice in real time. Moreover, as a direct access broker, Cobra Trading neither sells client order flow information nor do they receive any payments for order flow; client orders go directly to the stock exchange.

The platform also offers low commissions, starting as low as $0.0015 per share. Also, investors can use the platform to find hard-to-borrow stocks directly, making the capacity to short penny stocks more convenient and less costly.

Lightspeed Trading

On another note, Lightspeed Trading is a great platform for those who invest in penny stocks. Staying true to its name, one of the top reasons investors prefer Lightspeed is that it is said to have much faster connection speeds than its competitors. Moreover, it has a profoundly strong suite of technical indicators, allowing users to make better trades based on the movement of these indicators.

Charles Schwab

Charles Schwab is a great OTC broker because it offers truly free penny stock trading without the hidden costs charged by competitors. This can be an enormous benefit for an asset that often works on such small margins. As far as penny stocks are concerned, Schwab offers amazing customization and charting tools. Given that penny stock investments are data-driven, this can be highly useful for their traders.

Fidelity Investments

Lastly, Fidelity is an excellent penny stock trading platform to conduct research for penny stocks by market sector. The broker includes an Active Trader Pro platform available to all customers, regardless of trading frequency or account balance. In addition, it offers outstanding trade executions on listed stocks, as well as stock screeners that help users find the best potential trades.

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How Does OTC Market Work?

OTC markets are primarily used for trading instruments such as derivatives, bonds, currencies, as well as structured products. In addition, the OTC market can also be used to trade various equities. Regulated by the U.S. Broker-dealers; specifically, the OTC markets in the U.S. OTC are regulated by the Financial Industry Regulatory Authority (FINRA).

When using the OTC markets, brokers serve as market-makers by quoting prices to buy and sell currencies, securities, as well as other financial products. In addition, the OTC markets make it possible to execute between two participants without making others aware of the price used to complete the transaction. Either way, OTC markets are often less transparent than mainstream exchanges while also offering fewer regulations. Nevertheless, liquidity in the OTC market may come at a premium.

OTC Stocks vs. Exchange Traded Stocks

Before investing in OTC stocks, you may want to learn the difference between those and exchange-traded stocks. Some of the differences are:

Less Liquidity: OTC stocks are known for having less liquidity than exchange-traded stocks.

Lower Trade Volumes: OTC stocks also come with a low trading volume, little to no information publicly available, and higher spreads between the bid price and the asking price.

Higher Volatility: This is why OTC stocks are known for having higher volatility; investment choices are often speculative at best.

Greater Fraud Risk: Lastly, because of the higher volatility, OTC investors are also at a greater risk of fraud, and thus, they should research before investing.

OTC market key restrictions

Although the OTC market has far fewer restrictions than the traditional stock market, it is subject to some key restrictions. They are:

OTCQB

To be eligible for the OTCQB, companies must meet the following requirements:

Must comply with SEC Reporting, International Reporting, Bank Reporting, or OTC Alternative Reporting Guidelines.

Must have annual audited financials by a PCAOB auditor according to U.S. GAAP.

Must not be a shell company.

Must have at least 50 beneficial shareholders with at least 100 shares each.

Must meet all Corporate Governance standards including having an Audit Committee majorly composed of independent directors, as well as two Independent Directors.

Must be listed on a Qualified Foreign Exchange or be a U.S. reporting company (SEC, ARS, or U.S. Bank).

Must be current in public reporting requirements with ARS, SEC, or banking regulators.

Must provide disclosure of material news in a timely fashion.

Must not be subject to bankruptcy or reorganization proceedings.

Must be in good standing where the company does business.

Must have a Bid Price of $0.01 for 30 calendar days before applying.

Must offer free trading shares of at least 10% of total outstanding shares.

Must utilize a transfer agent participating in the Transfer Agent Verified Shares Program.

Does Penny Stocks Pay Dividends

Must have an attorney letter if the company is not audited.

Must file Form 15c2-11 to FINRA.

Must have a company profile that has been verified through OTCIQ.

What is a Minimum Deposit in OTC Market?

Once they have completed the quotation on the OTCQX, companies must pay a non-refundable fee of $5,000. Companies must also pay an annual non-refundable fee of $15,000 and a minimum bid price of $0.01.

What are Typical Penny Stocks Costs?

The amount of fees may vary based on the platform you’re using. For instance, platforms such as Fidelity charge no fees. However, the average fee for penny stock trades is $6.95 per trade.

How to Choose the OTC (Penny Stocks) broker?

If you are a beginner investor, here are a few tips to help you along the way:

To avoid fraud and scams, pay attention to licensing and reliability.

Also, pay attention to commissions to steer clear of hidden fees.

Start slow; since penny stocks are so inexpensive, you may be tempted to jump in head first. However, this can lead to a speedy loss of funds.

Keep long positions; selling short is for experts. Conversely, choosing the wrong positions can result in a significant loss.

Always do extensive research before investing. Make sure you are investing based on facts, not feelings.

Where to Buy Penny Stock?

How to Invest in Penny Stocks Online?

Do your research: Before investing in penny stocks online, make sure you find a reputable broker and take the time to research the stocks you plan to invest in. You should also take the time to learn how companies make their money. Doing so can help boost your odds of being successful.

Choose a broker: Now that you’ve done your research, it’s time to choose a broker. Finding a broker that enables you to manage your entire portfolio on one convenient platform. might be helpful.

Pick your stocks: Next, it’s time to pick your stocks. To do so, you need to consider how much money you want to invest and how many stocks you are interested in investing in. From there, you will want to decide which of the stocks you have researched is the best fit for your portfolio. One way to go about this is by using the educational tools available on the OTC market's official websites.

Start trading: Next, it’s time to start trading. To do so, solidify your budget (hint, never invest more than you can afford to lose), sign up for your chosen OTC broker, and deposit money so you can fund your trades.

Is OTC investing Safe?

Generally speaking, OTC investments are considered risky when compared to other types of investments. This is due to their high level of volatility and need for more transparency, among other things.

Methodology

This list was created based on research of the various OTC brokers on the web. Based on features, reviews, fees, and other pertinent information, this list was compiled based on an overview and assessment of all information available on and off the web.

Summary

Overall, if you’re interested in investing in penny stocks, you’re in great company! Plenty of investors enjoy investing in penny stocks and regularly realize significant financial gains. Nevertheless, being a successful penny stock investor requires lots of knowledge, experience, and skill. Therefore, if you are interested in becoming a serious investor, you will need to research and gain the experience necessary to become a major player in the sector.

FAQ

What are the advantages of investing in the OTC market?

The advantages of investing in the OTC market are investors can earn significant returns, there are fewer regulations, and you gain access to securities not available on traditional brokerage platforms.

What are the risks of investing in penny stocks?

The risks of investing in penny stocks are potential scams, low trading volumes, the lack of a minimum listing standard, high bid-ask spreads, and the lack of reliable information.

What are the OTC tiers?

There are several OTC tiers. They are:

OTCQX- This tier is considered the highest tier of OTC Markets' securities. To be eligible for the OTCQX tier, firms must maintain audited financial records and be current on all regulatory disclosures. They can’t be a penny stock in bankruptcy or a shell corporation.

OTCQB- This tier is designed for growth or early-stage companies with a minimum bid price of $0.01. They must have annually audited financials and be current in their regulatory reporting; companies also can’t be in bankruptcy.

Pink Market ("Pink Sheets"): Also known as the Open Market, this tier has no minimum financial standards. It may include a vast array of companies, which includes penny stocks, shell companies, foreign companies, and other firms that refuse to disclose financial information. Companies in the Pink Market are classified as showing limited information, no information, or current information only.

Grey Market: This tier applies to all other securities that are traded over the counter. Due to the lack of investor interest, financial information, and regulatory compliance, Grey Market securities are not quoted by broker-dealers.

What are the types of OTC securities?

The types of OTC securities are bonds, stocks, derivatives, bonds, ADRs, foreign currencies, and cryptocurrencies.

Team that worked on the article

Oleg Tkachenko
Author and expert at Traders Union

Oleg Tkachenko is an economist-analyst and a risk manager with a practical experience of working in financial institutions for over seven years. Oleg specializes in the analysis of commodities, Forex, stock markets and non-standard investment markets (cryptocurrency, hypes, peer-to-peer lending). He holds a Master’s Degree from the Ukrainian Academy of Banking of the National Bank of Ukraine, Kharkiv Banking Institute. Oleg became an author for Traders Union in 2018; in 2020 he joined the TU’s team of financial experts.

At Traders Union, Oleg is involved in expanded reviews of brokerage companies, and in monitoring the relevancy of the information provided in them. He analyzes trading strategies and indicators, and prepares educational articles on the topic of finance. In addition, Oleg carries out expert research in the Forex and stock markets, and also binary options and cryptocurrency markets. In particular, he checks brokerage companies, studies their performance and growth, tests new services offered by brokers, software and the level of customer support.

Oleg’s motto: Information is a force that opens boundless opportunities, but requires relevancy!

Dr. BJ Johnson
Dr. BJ Johnson
Developmental English Editor

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.

Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.