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Penny Stock Trading Guidelines the Individual Should Be Aware Of

10.26.2011 · Posted in Investing Articles

To start with, a penny stock is a stock that’s listed between 1 cent and $5 and is traded over the Pink Sheets or the OTC Bulletin Board. These stocks could also trade on foreign and other securities exchanges. Nonetheless, when trading small cap stocks, you will discover penny stock trading guidelines that must definitely be followed which are distinctive from the trading of stocks within the big exchanges.rnrnThe Securities and Exchange Commission (SEC) has established penny stock trading rules when trading and these rules are:rnrnThe Securities and exchange commission demands the broker to secure a written agreement from the customer concerning the transaction and the customer has to be approved to do the transaction.rnrnThe business is required by the SEC to supply the buyer with a report that describes the hazards of penny stock investing.rnrnThe guidelines declare that the buyer must be advised if there is a market quote and exactly what the market quotation is for the penny stocks the investor wishes to buy.rnrnThe organization also needs to disclose to the customer what their commission is going to be for the trade.rnrnPenny stock guidelines also state that the organization will have to supply the customer with monthly statements that discloses the market value of each penny stock.rnrnThese penny stock trading rules are essential to ensure proper trading of penny stocks and that the investor knows all risks connected with it. The SEC very carefully describes the penny stock rules that brokers must follow in order for the investor to get the best experience possible trading penny stocks by making the investor aware of all risks connected with penny stocks as to not cause them to get in over their head.rnrnIn the penny stock guidelines, there’s a Customer Protection Rule (Rule 15c3-3) that states the control over the money which is paid by the investor is in the hands of the broker. The broker must regularly figure up how much cash is being held that belongs to the customer or continues to be obtained from securities owned by the customer. If the broker can determine that there’s additional money available than what is owed to the customer or from the customer to the broker, the money has to be placed within a reserve bank account. This money is put in the banking account for the sole benefit of the customers. This rule is essential because it prevents the brokerage from using funds that belong to customers to fund their own business.rnrnPenny stock trading rules are designed to protect the client, the stock market, and the broker. If a broker breaks any of these rules established by the SEC, then a broker may be subject to Securities and exchange commission probes that may lead to severe trouble for the brokerage firm. This is why it is necessary for the trader to understand the penny stock investing regulations and make sure the broker is adhering to all rules accordingly so that the investments of the investor are not compromised in any way.

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