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Penny stocks are risky, low-cost investments, though they don’t actually cost a penny. They are shares of small companies that trade outside of major stock exchanges, and are also known as over-the-counter (OTC) stocks.
The precise definition of penny stocks will vary by broker. Some consider anything trading under $5 to be a penny stock, while others put the cutoff at $2 or $1. (For more on penny stock trading, see our article on investing in penny stocks.)
Penny stocks may seem like a steal when stacked against companies that trade for $500 or more. This is where the backstory is important: These stocks are cheap for a reason. Because they are issued by small, yet-to-be-established companies, penny stock values can be turbulent. They are often hard to research and accurately value, and they trade infrequently, which means they can be tough to sell. (Here are other ways to find cheap stocks beyond penny stocks.)
Long story short, many brokers are a bit antsy about penny stock trading. This can make figuring out where to buy penny stocks more challenging than other investments. Below are NerdWallet’s picks for the top brokerages for penny stock traders. These four brokers don’t impose any additional fees or investment restrictions on domestic penny stocks.
