What counts as a penny stock
The SEC's formal definition is a stock under $5 per share, not listed on a national exchange that meets specific size and continued-listing standards, and not from an issuer with sufficient net tangible assets or revenues. In practice, the term covers two overlapping universes.
First, listed sub-$5 names on Nasdaq or NYSE — typically small-cap companies under continued-listing pressure, or growth names that have de-rated. These trade on the lit exchanges and are accessible at every retail broker; the friction is purely psychological and risk-management.
Second, OTC-quoted micro-cap and nano-cap names — the speculative segment most people mean when they say 'penny stocks'. These trade on OTC Markets Group's tiers (OTCQX, OTCQB, Pink Current, Pink Limited, Grey market). Broker access varies dramatically by tier, and this is the dimension that determines your choice of broker.
Pick a broker that supports the tier you want to trade
OTCQX and OTCQB are supported by every mainstream broker. Fidelity, Charles Schwab, Robinhood, E*TRADE, Webull, Moomoo, Public, SoFi and Interactive Brokers all accept online OTCQX/OTCQB orders without restriction.
Pink Current is the inflection point. Schwab, Fidelity, E*TRADE and Interactive Brokers accept Pink Current orders online. Robinhood, Public and SoFi typically block the Pink tier entirely. Some brokers route Pink Current to a market maker via PFOF; sophisticated penny-stock traders prefer brokers that offer direct-market-access routing to a specific MM.
Pink Limited and Grey market access is reserved for day-trader-specialist brokers (Cobra Trading, CenterPoint Securities, TradeStation in some configurations) and a thin slice of full-service brokers willing to handle the order manually. Interactive Brokers accepts most Pink Limited names through their TWS platform with some restrictions.
- OTCQX / OTCQB — every mainstream broker
- Pink Current — Schwab, Fidelity, E*TRADE, IBKR, TradeStation, Webull, Moomoo
- Pink Limited / Grey — Cobra, CenterPoint, IBKR (TWS only), full-service brokers
Short-locate quality if you ever short
Many penny-stock strategies involve shorting parabolic moves. Locate availability and pricing on hard-to-borrow names is where penny-stock-specialist brokers materially outperform mainstream platforms. Cobra Trading, CenterPoint Securities and Interactive Brokers run deep small-cap borrow inventories and surface locate request/hold/release tools in their order entry.
Most app-first retail brokers (Robinhood, Webull, Public) offer little or no HTB inventory on small-floats and frequently mark active small-caps as no-locate-available throughout the session. If shorting is part of your edge, the choice is effectively binary: a specialist broker or no shorts.
Order routing, PFOF and sub-penny pricing
Listed names trade in penny increments; OTC names below $1 can quote in sub-penny increments (0.0001). Brokers that route to market makers under payment for order flow (PFOF) arrangements may execute outside the National Best Bid and Offer for OTC names by amounts that matter on micro-priced trades. Direct-market-access brokers (Cobra, CenterPoint, TradeStation in DMA mode, IBKR with ARCAEDGE/EDGEA) let you choose the routing venue or market maker explicitly.
For long-only buy-and-hold of a sub-$1 OTC name on small size, the routing question barely matters. For active multi-leg trading, the difference between $0.0030 and $0.0036 on 100,000 shares is $60 per round trip — and those round trips compound.
Risk reality check
Penny stocks are the highest-risk segment of US equity markets. Manipulation, pump-and-dump schemes, going-concern issues and fraud are concentrated here. The SEC publishes regular enforcement actions against Pink-tier issuers and the FBI runs ongoing cases. Treat any unsolicited tip — DMs, Telegram channels, paid newsletters — as adversarial.
Position sizing should be aggressive on the downside: assume any position can mark to zero overnight. Use limit orders only, expect wider spreads, and avoid pre-market and after-hours trading on names under $1 — extended-hours liquidity is effectively nonexistent and a market order at 4:01pm can fill 30% below the close.