How to buy penny stocks on Robinhood

Robinhood is one of the few brokerage accounts that offers access to penny stocks — stocks that can be purchased for $5 or less. Here’s how to find and purchase exchange-listed penny stocks on this popular trading platform.

Can I buy penny stocks on Robinhood?

You can buy penny stocks on Robinhood, but the selection is limited. This is because most penny stocks are not listed on the major exchanges like Nasdaq or the New York Stock Exchange and are, instead, listed on the Over-the-Counter Markets. Robinhood users can only trade exchange-listed stocks, making the app’s selection limited to penny stocks listed on the major exchanges.

Additionally, it’s difficult to search for penny stocks. Users can search for broad categories, like ETFs or stocks across certain sectors, but penny stocks are not a searchable category on the app.

Exchange-listed penny stocks are typically viewed as the safer alternative to OTC stocks because to be listed on an exchange, stocks must meet that exchange’s listing requirements and pay entry and annual listing fees. Requirements vary by exchange but typically include minimum stockholder equity amounts, minimum share prices and minimum shareholder counts.

Robinhood doesn’t offer access to over-the-counter (OTC) penny stocks.

Taking these steps limits the available stocks you see to Robinhood’s penny stock offerings. From here, you can sort the available stocks using Robinhood’s stock filters along the top of the screen. Organize by price, movement, market cap, popularity and analyst ratings.

Watch our short video that takes you step-by-step through the process:

How to buy penny stocks on Robinhood

Ready to submit an order? Here’s how:

1. Fund your account. Link your Robinhood account to an external bank account and transfer up to $50,000 a business day, and access to up to $1,000 instantly. Robinhood suggests transferring funds before making a purchase.
2. Pick a stock. Use Robinhood’s search tools to navigate available penny stocks.
3. Select your order type. Indicate whether you’d like to execute a market, limit, stop loss or stop-limit order on your purchase.
4. Indicate the number of shares. Enter the number of shares you want to purchase.
5. Review your order. Take a look at the details of your order and make sure all the information is correct.
6. Submit. Confirm your purchase by swiping up on mobile or clicking Buy on the desktop platform.

Risks to consider before you buy penny stocks

Robinhood doesn’t offer access to over-the-counter shares, which helps mitigate some of the risks associated with penny stocks. Still, you should carefully consider the following before investing in penny stocks:

• Limited track record. These low-dollar stocks tend to come from companies with a limited financial history, which may make it difficult for you to vet the stock.
• Illiquid. Penny stocks tend to trade at a lower volume than well-known companies or blue-chip stocks, which can make them more difficult to buy and sell.
• Unpredictable. Penny stocks have a reputation for volatility: they have been known to experience drastic swings in price — sometimes over the course of a single day.
• No dividends. It’s rare for penny stocks to pay dividends, so if you’re an income investor, you may want to steer clear.

Can I day trade penny stocks on Robinhood?

Yes, it’s possible to day trade penny stocks on Robinhood. But Robinhood Instant and Gold account holders can only execute up to three day trades in a five trading day period.A day trade is any security that is bought and sold on the same trading day. But day trading is a highly risky trading method. To execute a profitable day trade, you must be able to competently wield numerous trading strategies alongside a robust understanding of the market you plan to trade in.

Even with all the right tools at their disposal, day traders often face sizable losses. And Robinhood isn’t well-equipped to cater to this style of trading. It lacks the advanced charting and analysis tools of several of its competitors, including Webull and Tastyworks. Without advanced charting tools and indicators, day trading penny stocks on Robinhood could lead to uninformed trades that result in crippling losses.

The Pattern Day Trading rule

The Pattern Day Trading rule is set by FINRA and governed by the Securities and Exchange Commission (SEC), and applies to all US brokerages. It limits day trades to three day trades within a five trading day period for anyone with less than $25,000 in their account. For Robinhood traders, this rule applies to Instant and Gold account holders with less than $25,000 of equity in their account at the end of the previous trading day. Robinhood states that this restriction helps protect its investors from taking on too much risk — especially new investors with limited equity.

If you place more than three day trades within a five-day trading period, Robinhood marks you as a Pattern Day Trader (PDT) and you can’t place any day trades for 90 days unless you bring your account equity above $25,000. This rule may frustrate some traders, but is there to protect traders from the substantial risks involved in day trading.

Keep track of how many day trades you’ve made in five days by scrolling down to the Day Trades section from the Investing page of your account.

If you’d like to day trade on Robinhood, there are a couple ways around the platform’s pattern day trading rule:

• Hold a Robinhood Cash account.
• Have at least $25,000 in equity in your Instant or Gold account at the end of the previous trading day.

Can I day trade if I downgrade to a Cash account?

Yes, you can day trade by downgrading your Robinhood Instant or Gold account to a Cash account. That’s because Robinhood doesn’t impose the same pattern day trading restrictions on Cash account holders.

Those new to Robinhood automatically start with a Robinhood Instant account — a margin account with instant deposit support and extended-hours trading. The primary difference between Cash and Instant accounts is that Cash accounts don’t support instant deposit or settlements.

You can downgrade to a Cash account at any time. If you hold a Robinhood Gold account, downgrade to a Robinhood Instant account by taking the following steps:

1. From the Robinhood mobile app, tap Account in the bottom right corner of the screen.
2. Tap the three bars in the top right corner of the screen.
3. Tap Settings.
4. Tap Robinhood Gold.
5. Tap Downgrade from Gold.

To downgrade from an Instant account to a Cash account, email the Robinhood customer support team and request the change.

Read our full review of Robinhood

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Bottom line

While it’s possible to buy and sell penny stocks on Robinhood, the platform only offers access to exchange-traded stocks. And the platform’s pattern day trading rule may limit the number of trades you can execute.

Review your investment options on other trading platforms to find the account that best supports your investment goals.

Frequently asked questions

• Is it hard to sell penny stocks?

  It can be. According to the SEC, penny stocks are volatile and illiquid, meaning they may trade infrequently and be difficult to sell.

• What are OTC penny stocks?

  Over-the-counter (OTC) penny stocks are stocks sold through the electronic OTC Bulletin Board (OTCBB) instead of through a publicly traded exchange like the NASDAQ or NYSE.