Penny Stocks On Robinhood – The Complete Guide

by | Apr 14, 2021 | Investing

Penny stocks offer investors an opportunity to invest in young startups and exciting new ventures. These stocks can be highly volatile and aren’t regulated as tightly as stocks from more established companies, so they’re typically best for risk-tolerant investors.

If you’re a Robinhood user or are thinking about signing up for a Robinhood account, though, there are some limits on the types of penny stocks you can trade. In this guide, we’ll explain everything you need to know about penny stocks on Robinhood and highlight some alternative brokers that may offer more penny shares. Let’s dive in!

Penny Stock Trading

What are Penny Stocks?

Penny stocks are any stocks that have a price of less than $5 per share. In many cases, penny stocks have a price of less than $1 per share. These stocks are often issued by young startups and small companies that want access to capital from public markets but have very low market capitalizations.

Penny Stocks

An important thing for investors to note about penny stocks is that they’re not subject to the same reporting requirements as many major stocks, so it can be hard to find out much about a company’s financials. Investors need to be very cautious about investing in scams or near-bankrupt businesses when trading penny stocks.

Can You Invest in Penny Stocks on Robinhood?

Robinhood has exploded in popularity over the past several years, and many traders who join the commission-free brokerage want to trade penny stocks. So, can you trade penny stocks with Robinhood?

The answer is both yes and no. 

Robinhood Investing

Robinhood offers trading on around 5,000 stocks from the NASDAQ and NYSE stock exchanges, both of which include stocks that trade for less than $5 per share. While these stocks meet the definition of penny stocks, they are typically offered by reputable companies that are tightly regulated by the SEC. In many cases, these penny stocks aren’t the lightly regulated, highly volatile stocks that traders typically think of.

However, Robinhood doesn’t offer trading on OTC (over the counter) markets, which is where the vast majority of penny stocks trade. Penny stocks trading on OTC markets can have share prices as low as a fraction of a cent. The penny stocks that trade on OTC markets, and aren’t available on Robinhood, are the penny stocks that traders are usually referring to.

Click Here To Get Started

Pros and Cons of Trading Penny Stocks with Robinhood

There are benefits and drawbacks to trading penny stocks with Robinhood. The main benefit, of course, is that trading with Robinhood is commission-free. In addition, the brokerage app makes it easy to discover new penny stocks to trade and enables you to trade on margin (with a Gold account).

Trading Penny Stocks with Robinhood

On the other hand, Robinhood can suffer from slow execution speeds. That can be a major problem when trading penny stocks, since these shares often trade with low liquidity. Delays in trade execution can have a significant impact on the prices at which your orders are fulfilled.

The biggest downside to trading penny stocks with Robinhood is that, as we noted, you can’t trade OTC stocks with this broker. Since most penny stocks trade on OTC markets, Robinhood users miss out on tens of thousands of potential companies in which to invest.

Alternatives to Robinhood for Penny Stock Investing

While it may be very popular, there are some alternatives to Robinhood out there that are worth taking into consideration. It’s possible to get access to OTC penny stocks simply by choosing a broker other than Robinhood. Commission-free brokers like E*TRADE, Charles Schwab, and TD Ameritrade all offer trading on OTC markets. In addition, brokers like TradeStation and Interactive Brokers also allow you to invest in penny stocks that trade OTC. 

E*TRADE

It’s worth noting that these brokers all allow you to trade the same selection of NASDAQ- and NYSE-listed penny stocks that are available on Robinhood.

Conclusion: Penny Stocks on Robinhood

Robinhood allows you to invest in penny stocks that trade on the NASDAQ and NYSE exchanges. However, you cannot buy or sell penny stocks from the OTC markets – which is where the majority of penny stocks trade – with Robinhood. If you want to invest in penny stocks, you can get access to a wider range of shares than is available on Robinhood by using an alternative brokerage that offers trading on OTC markets.

<span style="font-size:12px;font-weight:500">Author</span><br><a href="https://wealthpursuits.com/author/kevin/" target="_self">Kevin</a>

Author
Kevin

Kevin is an ambitious entrepreneur that is obsessed with all things related to finance. From a young age, Kevin has always been involved with side hustles ranging from online selling to freelance work. Over the years, Kevin graduated from side hustles and started launching multiple online and offline businesses. Kevin is a serial entrepreneur who loves starting new businesses and exploring all things related to business and finance. He is constantly looking for new ways to save money, invest money, and create income streams.

Related Content:

Charlie Munger Investment Advice – 10 Actionable Tips

Charlie Munger Investment Advice – 10 Actionable Tips

Charlie Munger is the business partner of Warren Buffett and the vice-chairman of Berkshire Hathaway. Munger’s investment philosophy closely mirrors that of Buffett – he believes in investing in strong businesses with a long-term mindset. In this article, we’ll take a...

Jack Bogle Investment Advice – His Top 10 Philosophies

Jack Bogle Investment Advice – His Top 10 Philosophies

John C. ‘Jack’ Bogle was the founder of the investment firm Vanguard and is widely regarded as the father of modern index funds. He spent decades railing against active investing in general and high-fee mutual funds in particular. In this article, we’ll take a look at...

Jim Cramer Investment Advice – 10 Top Recommendations

Jim Cramer Investment Advice – 10 Top Recommendations

Jim Cramer, best known as the host of the CNBC show Mad Money, has made a career out of offering investment advice and stock picks. In this guide, we’ll take a look at 10 of Jim Cramer’s top pieces of investment advice that you can use to improve your performance in...

Dave Ramsey Investment Advice – Top 10 Finance Tips

Dave Ramsey Investment Advice – Top 10 Finance Tips

Dave Ramsey is a well-known financial guru who has spent decades helping individuals manage their finances and invest for retirement. In this guide, we’ll look at the top 10 Dave Ramsey investment advice tips for how you can manage your money and invest for the...

Mark Cuban Investment Advice – 10 Tips For Better Investing

Mark Cuban Investment Advice – 10 Tips For Better Investing

Mark Cuban is the owner of the Dallas Mavericks, an investor on the popular show Shark Tank, and co-owner of the media company 2929 Entertainment. He is worth an estimated $4.3 billion, which he earned primarily through investing in startups over the course of his...

How To Pick Dividend Stocks – A Complete Guide

How To Pick Dividend Stocks – A Complete Guide

Dividend stocks are popular among investors looking to generate steady income as well as earn profits through stock price appreciation. Dividends can be reinvested to buy more shares of the same stock or used to provide cash flow for your bank account. In this guide,...

Warren Buffett Investment Advice – 10 Tips He Swears By

Warren Buffett Investment Advice – 10 Tips He Swears By

Warren Buffett is arguably the most famous investor in modern history. The “Oracle of Omaha,” as Buffet is known, has a net worth of $100 billion after more than 50 years at the helm of Berkshire Hathaway. In this guide, we’ll take a look at 10 pieces of investment...