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Written by Matthew Cerminaro on June 26, 2021
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Robinhood Penny Stocks For Beginners In 2021

Each investment platform is known for something special. For Webull, it's the large amount of data available, for Betterment, it's the ability to put your investments on autopilot. And for Robinhood, it's the clean and simple user interface.

It is important to recognize what your investing goals are before choosing a platform. In this article, we will be discussing using Robinhood to invest in penny stocks.

Robinhood is one of the most popular commission-free trading apps that allows you to trade thousands of stocks and ETFs. But how does it work with penny stocks?

Below we will be looking at what types of penny stocks are available on Robinhood and how to start investing in penny stocks within the Robinhood platform. In general, penny stocks are considered to be a risky, highly speculative investment so beginner investors should proceed with caution.


Robinhood Penny Stocks: Summary

  • Penny stocks are any stock that trades below $5 per share
  • Robinhood offers hundreds of different penny stocks on its brokerage platform 
  • Robinhood equips its users with the proper tools to manage risk and trade penny stocks in a clean and simple way
  • Penny stocks inherently come with risk, so it is always important to develop a plan no matter what brokerage platform you are using 
  • Robinhood offers search capabilities on its website and app to sort through different penny stock options and find the right one for you 
  • While Robinhood does not offer penny stocks that are listed on OTC exchanges, it does offer stocks that are available on major exchanges (NYSE/NASDAQ)

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What Is a Penny Stock?

Before jumping into penny stocks on Robinhood, let's learn about the basics of penny stocks. Penny stocks are defined as shares of companies that are listed at $5 and below. These companies are typically micro-cap, meaning their market capitalization falls roughly between $50 million to $300 million.  

You might be thinking, a stock priced below $5? That stock is cheap! While a penny stock may have a low stock price does not mean you are getting a good deal.

In fact, a lower stock price may increase the risks associated with that investment. But with greater risk comes greater potential for gains.

robinhood interface

Penny Stock Risks

Because penny stocks typically have lower market capitalization, they are less liquid. This means there are fewer buyers and sellers in the market for that company. It might not be as easy to sell your stocks for a gain if there are a limited number of buyers. 

This makes penny stocks easy to manipulate and therefore presents a higher level of risk. Penny stocks often attract new investors who may jump on the bandwagon of a “pumped up” penny stock that has been artificially manipulated.

Make sure you are properly educated on the company, what news is moving it, and if the move is warranted! Be wary of any hot stock tips you hear especially from so-called stock market gurus.

In some cases, stock prices have the potential to increase solely because a guru is pumping up the stock price and once they sell out, the price could come crashing down.

To learn more on penny stocks, you can click here. If done correctly, there is plenty of money to be made trading penny stocks as well!  

Penny Stock Rewards 

On the flip side, it is possible to make a pretty penny trading penny stocks!

This is also due to the illiquidity in the market contributing to large intraday swings. Traders can take advantage of these large swings if they manage risk properly and find great entry points. Entry points can be found by analyzing support and resistance lines and performing technical analyses.

You can learn more about support and resistance here when trading. 

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We put together a free 30 minute video training that walks you through the entire process, step by step. This training will help you get up and running in no time at all.

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Before You Buy a Penny Stock

Before you consider getting involved with penny stocks, you'll want to make sure you've done your homework and have ironed out a trading strategy to follow. One of the best ways to do this is to start is with paper trading.

Paper trading is a market simulator that allows you to experiment with fake money. You can test out your trading strategies in a simulated environment before putting your hard-earned cash on the line to hopefully get some of those mistakes out of the way early.

Unfortunately, Robinhood does not offer this service. However, there are several free services that allow you to experiment with penny stocks.

One of our favorite free services for paper trading is Webull. On the Webull platform, you get access to $1,000,000 in fake cash that you can experiment with before you're ready to trade real dollars.

Robinhood Penny Stock Features 

So, how can you trade penny stocks on Robinhood?

Robinhood has made the news recently as many retail traders have flocked to the platform due to its zero commission structure. This broker offers several stocks, ETFs, options, and cryptos on its platform.

But the main question you are probably wondering is, does Robinhood offer penny stocks? 

Does Robinhood Offer Penny Stocks?

In short, yes! Robinhood offers hundreds of different penny stocks through its brokerage platform that you can invest in now. With penny stock options in every sector, Robinhood is aiming to provide abundant penny stock opportunities to its users. 

However, not all penny stocks are available on the Robinhood platform.

What Penny Stocks Does Robinhood Offer?

As previously mentioned, Robinhood offers many different penny stocks, with prices ranging from under $0.10 to $5! 

The penny stocks listed on Robinhood are those that are registered on the New York Stock Exchange (NYSE) or NASDAQ exchange. These are the two largest stock exchanges in the US and have strict requirements for listing when compared to other exchanges.

Can You Buy OTC/Pink Sheets Penny Stocks on Robinhood?

One of the most popular places that penny stocks trade is on the Over-The-Counter Exchange (also known as the "Pink Sheets"). The requirements for stocks to trade on this exchange are much more relaxed than the requirements for listing on NYSE or NASDAQ.

This can result in additional volatility and reduced liquidity. With fewer buyers on the market, it can be tougher to buy and sell these penny stocks at your desired prices, and you may find a more fragmented market.

On the Robinhood platform, you are not able to buy and sell stocks on these smaller exchanges. However, there are still plenty of penny stocks on the larger exchanges which will generally be much more liquid investments.

Robinhood Order

Executing a Penny Stock Trade on Robinhood

Executing a penny stock trade on Robinhood is no different than any other trade you make on the platform.

The steps are easy to follow and they involve just 3 simple steps.

Search for a company, select it in the app, and click 'Buy'! It is that easy. 

No wonder Robinhood is known for its simplicity and navigational ease, two very attractive components of the company and its service.  

One of our favorite features of Robinhood is the ability to purchase fractional shares. Before you confirm your purchase, you will have the option to invest in terms of whole shares or dollars. This feature alone has brought several investors to the Robinhood platform.

Since this article focuses on penny stocks, it likely doesn't make sense to purchase fractional shares since the shares are so inexpensive as it is.

How to Find Penny Stocks on Robinhood

To search specifically for penny stocks on Robinhood, simply log into the website of the app. 

  1. In the app or on the web, navigate to the 'Trending Lists' of stocks on the platform (this is found on the main page below your portfolio summary on the web and under the search tab within the app). 
  2. From there, select “Show More.” Here, you will be shown the different market sectors.
  3. Click on the sector you are interested in and select “see all stocks.”
  4. All there is left to do now is filter the price limits. On the website, you can set the max to $5 whereas, on the app, you can filter prices from low to high.

You will see dozens of companies. Make sure you do your homework and research before jumping into the first one that catches your eye! Remember the precautions mentioned previously. Penny stocks come with risks. Successful traders are the ones who do their research, make a plan, manage their risk, and book their profits. 

As the timeless trading adage goes: if you fail to plan, you plan to fail.

Researching Penny Stocks on Robinhood

Just because you can find penny stocks on Robinhood, doesn't necessarily mean you can dig deeper and research them. The research tools and data on Robinhood are quite limited, so you'll likely have to look elsewhere to figure out which penny stocks to buy.

Most penny stock traders rely on technical stock analysis to plan their trades. On Robinhood, you're not able to do much in the way of technical analysis. Instead, you'll likely need to use an app like Webull for your research.

Robinhood was designed to be a more beginner-friendly platform, and for that reason, they keep the interface simple. This is useful for long-term investors but can be a hindrance for short-term traders.

That being said, it is possible to get a number of advanced features within the Robinhood platform. Upgrading to a Robinhood Gold subscription will provide you with Level II market data which is a must-have for active traders.

However, there are other features you'll probably want as an active trader that you won't find with Robinhood.

Managing Risk on Robinhood When Trading Penny Stocks 

The most important part of trading penny stocks is making sure you properly manage risk.

Robinhood has the proper tools to make this happen. The main way most traders properly manage risk is by setting a stop loss. Stop losses are a type of market sell order that will automatically sell all of your shares at a predetermined price.

Stop loss orders can be very handy while trading penny stocks because risk can be defined and limited.

Robinhood Penny Stock Trading Example

For example, let's say Joe has found a penny stock that looks interesting to him. 

He does thorough research and determines it is a great deal at $3 per share. He believes the stock has the potential to increase to $4 per share. After reading analyst reports and finding a fair value for the company, he decides to buy 100 shares of that stock with a total investment of $300. To properly manage risk, he sets a stop loss at $2.75. His risk/reward ratio is now defined.

If the stock goes to $4, he makes $100, but if it drops to $2.75 or below, his stop loss will automatically trigger and sell his position at the best available price. That means, worst-case scenario is it goes down $0.25 and he loses $25.

Many traders focus all of their attention on what they will do if the stock price goes up. However, it's important to also have a plan for when things go south so you can keep a level head.

Analyzing risk is very important when trading stocks, and is easier said than done. If you are planning on trading penny stocks, make sure you set a plan like this one. Always manage risk and you will have a lot more confidence when trading penny stocks!   

Why Use Robinhood to Buy Penny Stocks? 

The main reason why Robinhood is a great option for trading penny stocks its zero commission policies on all stocks.

Because penny stocks are so cheap, you can invest in them with almost any sum of money. All you need is $5! While some legacy brokerage companies still charge commissions to execute a buy and sell of a penny stock, Robinhood does not. They make money in other ways. 

This makes it a great option as commissions will not eat into trading margins which are typically fairly narrow when trading penny stocks. 

catalyst pharma graph

Robinhood Penny Stock Pros 

  • Zero commissions on all penny stocks allow investors to keep trading costs low when investing with any sum of money 
  • Hundreds of different penny stocks offered through Robinhood’s brokerage platform, covering all of the main industries and market sectors 
  • Ability to search for penny stocks on Robinhood’s company website, making it easy to find the right penny stock that is also in the price range you're looking for   
  • Robinhood offers various order types to equip its users with the proper risk management tools, an essential factor when investing in penny stocks 

Robinhood Penny Stock Cons 

  • Penny stocks inherently come with several risk factors that have been noted above 
  • While Robinhood does offer hundreds of different penny stocks to its users, it does not cover every single penny stock that is listed on the open market 
  • Robinhood does not offer market research on all penny stocks that it offers. You will have to seek alternative resources to perform research 
  • No tactical trading platform offered, making it hard to trade with technical analytics, a method that is crucial to consider when trading penny stocks 
  • No paper trading platform to practice trading with fake money before putting your hard-earned cash on the line

Robinhood Penny Stocks: Final Thoughts

To sum it all up, Robinhood does offer fantastic penny stock trading capabilities on its brokerage platform.

With hundreds of different penny stocks to choose from spanning diverse industries and market sectors, Robinhood will have a penny stock choice for all of your investment interests. It also is equipped with the proper order tools to let you properly manage risk when trading penny stocks.

Always remember that even if you do choose to use Robinhood as your brokerage platform of choice for trading penny stocks, it is important to do your research on every company you decide to buy. Just because it is listed on Robinhood and looks cheap does not mean it is automatically a buying opportunity!  

At the end of the day, when exploring different online brokers it all boils down to your preferences. Remember to consider your goals and passions as well as the companies that you are interested in.

This will help you choose the right online brokerage platform for you!

There are dozens of free trading apps out there these days all with their own strengths and weaknesses. However, when it comes to penny stocks, Robinhood is definitely a solid option.

Article written by Matthew Cerminaro
Matt is currently attending Union College pursuing a Bachelor of Arts in Economics. He participates in the student investment fund and is a member of the Union College football team. Matt runs his own personal finance Instagram page and market-related blog where he writes about economics and general wealth accumulation tips.

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