Stock Trading
Jun. 19, 202313 min read

How to Pick and Trade Penny Stocks on Schwab

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Written by Tim Bohen

If you’re a penny stock trader, Schwab can give you most of what you need in a broker. Charles Schwab is a reliable broker that recently acquired TD Ameritrade to become, by the numbers, the undisputed heavyweight of U.S. stock brokers…

There are worse places to put your money.

Schwab offers access to a wide range of penny stocks, which are shares of small companies traded at less than $5 per share. Penny stocks are usually sketchy companies with bad fundamentals. Many of them trade on the over-the-counter (OTC) markets, which have fewer requirements than major exchanges like the NYSE and Nasdaq.

Schwab customers can access all of these markets.

Read on for my tips and opinions on trading penny stocks on Schwab — as well as some stock picks!

What is Schwab?

Charles Schwab is a major Wall Street broker that provides financial services to everyone from individual investors to large-scale financial institutions. 

Schwab lets you trade a big variety of securities, including penny stocks, mutual funds, and ETFs. They have low fees and fast executions. 

The company is also known for its great customer service and robust managed account infrastructure. This infrastructure is getting even bigger with the acquisition of TD Ameritrade, the adoption of its killer platform thinkorswim, and the introduction of all of the acquired broker’s resources.

Here are the best penny stocks to buy on Robinhood and Webull!

Can I Buy Penny Stocks on Schwab?

Schwab traders can buy both penny stocks listed on major exchanges like NYSE and Nasdaq, and unlisted penny stocks on the OTC markets. 

Check out our list of the best penny stocks on Nasdaq here!

Why Use Charles Schwab as Your Penny Stocks Investment Broker?

First of all, you should never invest in penny stocks.

The only real way to make money on penny stocks is by trading them. Effective trading requires faster executions, better platforms, and lower fees — so your broker is even more important.

I break down how to choose a broker in this video…

Schwab gets high marks in the following categories: 

  • Top research tools, information, and trading data 
  • Fast executions 
  • Good customer service
  • Effective security
  • Great user reviews

Here’s a breakdown of Schwab’s strengths:

Managed Account

With Schwab, you get the opportunity to own a managed account where you can keep track of your investments and trades. The company offers support and advice on creating a diverse portfolio. Furthermore, you have the option to reinvest your profits back into your account.

This is great for passive investors, not so much for penny stock traders — but it may come in handy further on in your investing journey.

Seamless Trade Execution

Schwab prides itself on the seamless execution of trades. Whether you’re buying or selling penny stocks, your orders get processed swiftly. 

It uses a proprietary order routing system with average execution speed of 0.03 seconds and a savings to investors averaging $14.32 per order (500-1,999 share trades in S&P 500 shares).

The smooth trade execution reduces the risk of “slippage.” This is what happens when your order gets filled at a worse price than you’d executed on, a common concern for penny stock traders.

Advanced Research Tools and Educational Resources

Schwab offers advanced research tools and educational resources, including news updates, data analysis, and more. 

If you have an advanced trading platform like StocksToTrade these research tools won’t matter as much, but they’re always nice to have.

Impeccable Customer Support

Charles Schwab provides impeccable customer support, answering questions and resolving issues efficiently. Whether you need help with account setup, understanding their trading platform, or have a question about a specific stock, Schwab’s support team has you covered.

Mobile App for On-the-Go Trading

For traders who prefer trading on the move, Charles Schwab offers a mobile app. This app allows you to monitor the market, conduct research, and execute trades from your smartphone.

Fully Secure Website

Security is a big concern for many traders. Just because you might get scammed by a penny stock doesn’t mean you want to get scammed by someone else!

Schwab’s website uses high-end security measures to ensure the safety of your information and transactions. That should be a given, but it still bears mentioning.

Schwab Limitations

Though Schwab is comparable with other leading brokers like Fidelity and Interactive Brokers, it’s not without its limitations. Here are some of the ones that stick out.

Not an Ideal Choice for Shorting

Schwab isn’t the best broker for shorting penny stocks. While its fees are competitive, its shares available for shorting often lag the competition, as does their market access.

Outdated Platform

Though Schwab provides access to advanced research tools, its StreetSmart Edge trading platform feels a bit outdated compared to newer, more modern platforms. The user experience isn’t as streamlined as you might expect…

This is especially true for Mac users. StreetSmart Edge is only native for Windows computers — Mac users must access a cloud version, and connection issues are often reported.

This could all change soon with the introduction of TD Ameritrade’s thinkorswim platform. In any case, I prefer StocksToTrade.

It has the trading indicators, dynamic charts, news scanning and stock screening capabilities that traders like me look for in a platform. It has a selection of add-on alerts services, so you can stay ahead of the curve, as well as a killer proprietary algorithm that gives intel on the day’s hottest stocks.

Grab your 14-day StocksToTrade trial today — it’s only $7!

High Margin Rates

Schwab has relatively high margin rates, especially when compared with exclusively online brokers like Interactive Brokers or Webull. 

These can eat into your profits, especially when dealing with the high borrow costs on some penny stocks. Although this might not impact every trader, it’s one more factor to consider.

Schwab Penny Stocks Watchlist — Top 5 Picks

My Schwab penny stock picks are:

  • NASDAQ: CXAI — CXApp Inc. — The Cheap AI Stock Supernova
  • NASDAQ: WETG — WeTrade Group Inc. — The Low-Float AI Stock Pick with News
  • NASDAQ: TOP — TOP Financial Group Ltd. — The SEC-Dinged Chinese IPO Stock 
  • NASDAQ: GSIT — GSI Technology, Inc. — The Next Meme Stock?
  • NYSE: CVNA — Carvana Co. — The Short Squeeze Stock

The following are some of the stocks that people on Robinhood have been trading more than most of the market…

There’s no guarantee I’ll trade any of these stocks. I’m watching them to see if they match my preferred setups — only then will I trade them.

The best traders watch more than they trade — that’s what I’m trying to model here.

Sign up to our NO-COST weekly watchlist here!

CXApp Inc. (NASDAQ: CXAI) — The Low-Float AI Stock Supernova

My first Schwab penny penny stock pick is CXApp Inc. (NASDAQ: CXAI).

This is one of the hottest runners in 2023.

It first spiked on April 13. In May it spiked again.

In June, it looks like it’s consolidating near its highs. It might be setting the table for another leg up.

Some days CXAI is pretty thinly traded. It’s been able to hold support due to its tiny 1.7 million share float and the strength of the AI sector…

When news hits, this thing can really spike (check out its 1,000% push in mid-April). But the otherwise thin volume can mean lots of volatility combined with poor liquidity.

WeTrade Group Inc. (NASDAQ: WETG) — The Low-Float AI Stock with News

My second Schwab penny stock pick is WeTrade Group Inc. (NASDAQ: WETG).

WETG is the new AI stock on the block. On June 14 it announced that it was working on its own proprietary large language model (LLM) — sending its stock up nearly 150%!

Check the float. It’s only 500,000 shares. That means the 16 million shares traded on the day of its announcement can really impact the supply.

Its average 60-day volume is just over 100,000 shares traded.

LLMs are what drive AI chatbots like ChatGPT and Google’s Bard. They function as predictive engines, drawing on large data sets to figure out what words are most common after the last words that were written.

A new LLM could be huge — but it’s probably just a pump.

That isn’t necessarily a bad thing. You just have to understand that this probably isn’t the next NVIDIA Corp. (NASDAQ: NVDA), and trade it accordingly.

TOP Financial Group Ltd. (NASDAQ: TOP) — The SEC-Dinged Chinese IPO Stock 

My third Schwab penny stock pick is TOP Financial Group Ltd. (NASDAQ: TOP).

Over two days in late April, TOP launched over 3,700%.

In doing so, it gave birth to a short-lived hot sector — Chinese IPOs.

You might remember another Chinese IPO from last year…

Due to the uncharacteristic price movement, the SEC halted TOP trading on May 12. Trading resumed May 30, but the stock has been quiet since.

This sector is a powderkeg — it could go off at any time.

GSI Technology, Inc. (NASDAQ: GSIT) — The Next Meme Stock?

My fourth Schwab penny stock pick is GSI Technology, Inc. (NASDAQ: GSIT).

GSIT is a Reddit stock if there ever was one. Just read what MarketWatch reported:

“An influential meme stock trader, who goes by the name Obi and participates in the WallStreetBets group on Reddit as Major-Access2321, told MarketWatch that he sees meme-like parallels between GSI Technology and Top Financial Group Ltd. The Hong Kong-based trading firm’s stock skyrocketed more than 890% last month, before pulling back.”

Of course, Obi also championed crappy meme stock Mullen Automotive (NASDAQ: MULN), so take this recommendation with a grain of salt.

One thing that isn’t a mirage is GSIT’s 350% run from mid-May through mid-June. The rally started out of nowhere — maybe from a mention of the company on Fox Business, where GSIT was proposed as a superior bet to NVDA as an AI play.

In the time since, GSIT has proven that it has staying power. I’ll be watching to see how much higher it can go!

Carvana Co. (NYSE: CVNA) — The Short Squeeze Stock

My fifth Schwab penny stock pick is Carvana Co. (NYSE: CVNA).

The short squeeze du jour is CVNA… It’s riding a 400% run into mid-2023 and showing no sign of slowing down!

Short interest has been at 50% during its May eruption. Don’t think that Reddit traders don’t notice.

The shorts have a point. Year-over-year revenue is down 25%. Share value is down 93% from its 2021 peak!

The point for longs is that this stock is in the midst of a technical breakout. I wouldn’t hold this stock for the next five years, but right now it’s looking pretty squeezy. 

How to Start Penny Stock Trading on Charles Schwab

It’s easy to start trading penny stocks on Schwab: 

  1. Open an account
  2. Deposit some money
  3. Scan for penny stocks with potential 
  4. Build a trading plan
  5. Place an order
  6. Cut your losses / count your gains
  7. Write it down in your trading journal

Key Takeaways

Charles Schwab is a trusted name in the world of penny stock trading, offering secure, well-rounded service. Though it isn’t perfect for everyone, especially those interested in short selling or those who prefer a more modern trading platform, it does a pretty good job overall. 

Schwab’s best features, like its fast executions, range of asset offerings, and excellent customer service, have made it the biggest broker around.

Finding your broker is just a small part of your trading journey. You’ll need to learn how to read chart patterns, and understand how to build a good trading strategy. That’s why we’ve created Daily Income Trader.

Daily Income Trader gives you access to all of the following:

  • Premarket Prep with StocksToTrade lead trainer Tim Bohen
  • Bryce Tuohey from Small Cap Rockets giving a market open webinar each day
  • Tim Bohen back at noon with his afternoon Double Down review
  • Small Cap Rockets’ Matt Monaco in the after-hours sharing his game plan for the next trading day

You get access to StocksToTrade, the subscriber-only trading rooms Breaking News and Small Cap Rockets, the Discord chat, 600-plus webinars, and more…

Daily Income Trader is your key to unlocking the market — check out the webinar here!

Do you use Schwab? Let me know about your favorite penny stock broker in the comments!