How To Trade Penny Stocks Without Paying Fees

Chris Dios - October 08, 2019

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It takes a lot of hard work to be a successful penny stock trader. If you’re new to trading, you probably don’t know how to invest in penny stocks. That’s okay, everybody starts somewhere. If you want to learn how to trade penny stocks, you’ll have to do some homework.

Penny stocks are intimidating, even for experienced traders. However, there are huge profits in store for traders that can find the winners before the market gets hip to them. If you’ve never traded stocks before, you should probably get some practice before you start risking your hard-earned cash.

If you’re ready to start trading penny stocks now, you’re in the wrong place. Check out our top penny stock picks for our newest trade ideas. Our top 5 penny stocks list is updated monthly:

pennies spilling from jar
Stocks that trade for less than $5 are commonly referred to as ‘penny stocks’

How to Trade Penny Stocks: What is Paper Trading?

Investors make simulated trades based on actual market data so they can hone their skills without risking any capital. Almost every professional stock trader on Wall Street had to practice with paper trades at some point in their career. 

It doesn’t matter how much research you’ve done. The market is always ready to throw you a curveball. Some things can only be learned through experience. Paper trading allows new traders to gain experience without risking their cash.

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Paper trading helps traders gain valuable experience without risking capital.

Practicing With Paper Trades

These days, you need more than a pencil and a pad to make realistic paper trades. Most modern paper trading is done with full-feature stock market simulators. These advanced programs provide 100%-realistic trading experiences. 

Many brokers have paper trading options built into their platforms. Usually, you start with a set amount of “cash” in your account. Trade with your account just like you would a cash account. It’s a great way to realistically gauge your ability. Once you can consistently make profitable trades on paper, you can start thinking about making cash trades.

If you’re looking for a paper trading app, check out WeBull. The mobile app has a built-in stock simulator. Once you’re ready to trade for real, you can deposit funds and trade on the same exact app. 

Penny Stock Brokers

You can trade penny stocks on any broker. You can trade NASDAQ and NYSE-listed stocks through practically every U.S. broker. Even discount brokers offer access to exchange-traded funds. These are the most popular brokers for new traders.

If you’ve got a bigger trading budget or you’re looking for more stable companies, be sure to check out The Dork’s ‘Best Stocks Under 10 Dollars’ monthly watchlist. 

Robinhood Penny Stocks

Younger traders embraced Robinhood’s simplified trading platform and zero-fee accounts. Now, it’s one of the most popular mobile brokers. Robinhood users can trade exchange-listed penny stocks and select cryptocurrencies. Users can’t trade OTC stocks, bonds, or international stocks. Learn more about Robinhood penny stocks here.

WeBull Penny Stocks

WeBull offers similar market access to Robinhood. Users can trade stocks listed on major exchanges, including penny stocks. 

How to Trade Penny Stocks: OTC Stocks

If you want to access to the complete penny stocks universe, you’ll need a broker that offers access to over-the-counter markets. OTC stocks are some of the riskiest investments around, but many traders are willing to use them for speculative trades.

Full-service brokers offer access to alternative assets too. If stocks feel to risk for your needs, consider alternatives like bonds, mutual funds, and gold.

Major Stock Brokers

Robinhood set the trend towards zero-commission trades, and now the big brokers are following suit. Even the powerhouse brokerage firms are throwing out their trading fees. The competition is crazy in this industry, and that’s great for traders! These firms offer a full range of investment vehicles, including mutual funds, options, and OTC stocks.

Schwab (SCHW)

Schwab was the first major brokerage firm to trash trading commissions, setting off a chain reaction that carried across the industry. Schwab offers a full suite of investment tools and free research reports from Morningstar.

E*Trade (ETFC)

Another popular discount broker, E*Trade has powerful technical analysis tools built directly into its trading platform. The followed Schwab’s lead and went to a zero-commission cost structure in late 2019.

TD Ameritrade (AMTD)

TD Ameritrade also cut broker fees after the other major brokers made their move. TD Ameritrade has tons of research and education tools, including SinkorSwim education and options paper trading.

Penny Stock Screens

Finding quality penny stocks is difficult, but there’s an easy way to come up with a shortlist of picks that fit your criteria. Stock screeners help traders find new companies and investment opportunities. Stock screeners vary in sophistication and ability, but they all pretty much do the same thing. Professional-grade screeners are fully customizable and offer a variety of options, while more basic programs might only screen for a few main areas.

Finviz offers a free stock screener that has a ton of features. It’s a great tool for new traders. Signup is free and includes access to a powerful screener that scans all stocks listed on major exchanges, including the NASDAQ, NYSE, and AMEX. Although Finviz does not scan OTC markets, there is a professional version available that offers more comprehensive features. Click here for our full Finviz review.

finviz example screen
The free Finviz stock screener has tons of filters. The categories mentioned in this article are underlined for your convenience.

Sample Screener Settings

  • Less Than 5 Dollars. Set the cost section to return results that are trading for less than $5. This ensures that all of the results returned will be penny stocks.
  • NASDAQ or NYSE Listed. If you’re using a discount broker, you might not be able to access OTC markets. Keep your search limited to NASDAQ/NYSE stocks to ensure you can actually buy the stocks you’re researching.
  • Small-Cap or Larger. Larger companies tend to be more stable than smaller ones.

Setting too many screener filters can be counterproductive. You can end up missing out on great opportunities or, worse yet, picking total losers based on arbitrary statistics. Figuring out which screens work best for your trading strategy takes time. That being said, you may want to consider using some secondary filters to further shorten your list.

More Penny Stock Screener Settings

  • Price Performance. If you’re a momentum trader, check out the price-performance filter. If a stock is up over 10% in the last 30 days, it might be worth looking at.
  • Price-to-Earnings (P/E Ratio).  This is the preferred valuation metric for many brokers. The ideal settings for this filter vary by sector, so do some comparison research to determine what the average across the sector is and adjust accordingly.
  • Price-to-Book (P/B Ratio). Value investors pay a lot of attention to the price-to-book ratio. It measures a company’s price in comparison to the actual book value of its assets. Some value investors look for P/B ratios under 3.0.

More on Penny Stocks

That’s how to trade penny stocks. If you’re still lost, be sure to check out our full selection of penny stock trading articles. They have everything you need to learn how to trade penny stocks. 

Sign up for FREE Stock Dork Alerts to get the latest penny stock alerts delivered directly to your inbox. Be sure to follow The Dork on Facebook, Twitter, and Google News to stay up on all the latest stock market news.

Chris Dios is an American writer and entrepreneur based in the Greater NYC area.

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