How to Buy Penny Stocks on Robinhood
Yes, you can buy penny stocks on Robinhood, but with real limits
Robinhood does let you buy stocks that trade for under $5, which includes most penny stocks. However, the platform has restrictions that make penny stock trading harder than it is on other brokers. Robinhood does not offer penny stocks on over-the-counter (OTC) markets — only those listed on major exchanges like NASDAQ and the New York Stock Exchange. This cuts out a large portion of the penny stock universe and removes some of the highest-risk, lowest-liquidity names.
The real friction comes from Robinhood's order types and market access. You cannot place limit orders that sit on the market after hours, and you cannot short penny stocks at all. If you want to bet that a penny stock will fall, Robinhood is not the right platform. For most retail traders, these constraints actually work in your favor — they push you toward stocks with real trading volume and away from the most speculative corners of the market.
Key Takeaways
- Robinhood lets you buy penny stocks listed on NASDAQ and NYSE, but not OTC penny stocks, which eliminates many of the riskiest names.
- You cannot short penny stocks on Robinhood, and after-hours limit orders do not carry over to the next trading day.
- Penny stocks on Robinhood still carry high volatility and low liquidity — the platform's restrictions do not make them safe, only more regulated.
- Robinhood charges no commission on stock trades, which can make frequent penny stock trading feel cheaper than it actually is when you factor in bid-ask spreads.
Which penny stocks are actually available on Robinhood
Robinhood's inventory is limited to stocks listed on major U.S. exchanges. That means you can buy penny stocks from NASDAQ and NYSE, but not from the OTC Markets Group (also called the pink sheets or OTC bulletin board). The OTC market is where most true penny stocks trade — companies too small, too new, or too troubled to meet exchange listing standards. By excluding OTC stocks, Robinhood removes the most volatile and least transparent part of the penny stock market.
The stocks you can buy on Robinhood under $5 are usually either small-cap companies that have fallen in price, or legitimate small companies that have chosen to stay on major exchanges. These tend to have higher trading volume and tighter bid-ask spreads than OTC penny stocks. That does not mean they are safe — penny stocks remain penny stocks — but it does mean you can actually sell your shares without waiting days for a buyer.
How bid-ask spreads eat into penny stock returns on Robinhood
Robinhood advertises zero-commission trading, which sounds like a huge advantage for active traders. But penny stocks are where that advantage shrinks. When you buy a penny stock, you pay the ask price (what sellers want). When you sell, you get the bid price (what buyers offer). On a stock trading at $2, the spread might be $0.05 or $0.10 — meaning you lose that amount instantly just by entering and exiting the trade.
On a $100 stock, a $0.05 spread is 0.05 percent of your money. On a $2 stock, it is 2.5 to 5 percent. That gap has to close before you break even. Robinhood's zero commission does not offset this cost. If you are buying and selling penny stocks frequently, you are paying a hidden fee every single time. Limit orders help — you can set a price you are willing to pay or accept — but Robinhood does not let those orders sit after hours, so you have to reset them each morning.
Why you cannot short penny stocks on Robinhood
Shorting means borrowing shares, selling them at today's price, and hoping to buy them back cheaper later. Robinhood does not allow shorting on any stock under $5. This is partly a risk management decision — penny stocks are volatile enough without leverage — and partly a regulatory one. Brokers that lend shares for shorting have to maintain inventory and manage the risk that a stock gets delisted or halted. Penny stocks are more likely to face both.
If you want to profit from a penny stock falling, Robinhood is not the right platform. You would need a broker that offers margin accounts and short selling, such as Interactive Brokers or Tastytrade. Those platforms charge fees and have higher minimum account balances, but they give you access to strategies Robinhood does not.
How after-hours trading works (and does not work) for penny stocks
Robinhood lets you trade during extended hours — before the market opens at 9:30 a.m. and after it closes at 4 p.m. Eastern time. But there is a catch: limit orders placed during extended hours do not carry over to the next regular trading session. If you place a limit order to buy a penny stock at $1.50 at 6 p.m., and the stock never hits that price before the market closes, your order vanishes at 8 p.m. You have to place it again the next morning.
This matters for penny stocks because they can gap up or down overnight on news or social media attention. If you want to catch a move at a specific price, you cannot set it and walk away. You have to be there to place the order during the time window when it might execute. Market orders during extended hours are possible, but they execute at whatever price is available — which can be far from the last regular-session price on a low-volume stock.
Comparing penny stock trading on Robinhood to other brokers
Robinhood's main advantage is simplicity and zero commission. Its main disadvantage is the feature set. If you want to trade OTC penny stocks, short, or use advanced order types, you need a different broker. Interactive Brokers offers access to OTC markets and shorting, but charges commissions and requires a $2,000 minimum account balance. Tastytrade also allows shorting and has lower commissions than most brokers, but has a $2,500 minimum. TD Ameritrade (now part of Charles Schwab) offers OTC access and shorting through its thinkorswim platform, with no account minimum.
For a beginner with a small account who wants to buy and hold a few penny stocks listed on major exchanges, Robinhood is fine. For someone who wants to actively trade, short, or access the full penny stock universe, you will outgrow it quickly. The zero-commission structure also creates a psychological trap: because there is no visible fee, it feels free to trade frequently, but the bid-ask spread is still real.
The real risks of penny stocks, regardless of platform
Robinhood's restrictions do not make penny stocks safe. They just make the most dangerous ones unavailable. Penny stocks on major exchanges still have low trading volume, high volatility, and limited public information. A company trading at $2 on NASDAQ is still a company with serious problems or a very early stage of growth. Many penny stocks are used for pump-and-dump schemes, where promoters hype a stock to drive the price up, then sell their shares and disappear.
The fact that a stock is listed on NASDAQ instead of OTC does not protect you from that. It just means the company has met some minimum standards and is subject to SEC oversight. Robinhood's zero commission can actually make this worse — it lowers the friction cost of chasing a hot tip or a stock you saw on social media. Before you buy any penny stock, research the company's financials, understand why the stock is so cheap, and only risk money you can afford to lose.
Frequently Asked Questions
Can I buy OTC penny stocks on Robinhood?
No. Robinhood only offers stocks listed on NASDAQ and NYSE. Most penny stocks trade on OTC markets, which Robinhood does not support. If you want access to OTC stocks, you will need a broker like Interactive Brokers or TD Ameritrade.
What is the minimum price to buy a stock on Robinhood?
There is no minimum price. You can buy stocks trading at $0.01 or lower, as long as they are listed on a major exchange. However, stocks below $1 are rare on NASDAQ and NYSE because exchanges have delisting rules for stocks that trade too low for too long.
Do I pay taxes on penny stock gains the same way as other stocks?
Yes. If you hold a penny stock for less than a year before selling, gains are taxed as short-term capital gains at your ordinary income tax rate. If you hold for more than a year, they are taxed as long-term capital gains at a lower rate. Losses can offset other capital gains or up to $3,000 of ordinary income per year.
Why is the bid-ask spread so wide on penny stocks?
Penny stocks have low trading volume, so there are fewer buyers and sellers. Market makers have to charge a wider spread to cover their risk that they will get stuck holding shares that move against them. On a highly liquid stock like Apple, the spread might be a penny. On a penny stock with 10,000 shares traded per day, it might be 5 cents or more.
Can I set a limit order on a penny stock and leave it overnight on Robinhood?
Not during extended hours. Limit orders placed before 9:30 a.m. or after 4 p.m. Eastern time will cancel at the end of the extended-hours session. You can place regular limit orders during market hours (9:30 a.m. to 4 p.m.), and those will stay active until filled or until the end of the trading day.