Initial of all, a penny stock is a stock that is priced amongst 1 cent and $five and is traded over the Pink Sheets or the OTC Bulletin Board. These stocks may possibly also trade on foreign and other securities exchanges. Even so, when trading penny stocks, there are penny stock guidelines that need to be followed that are distinct from the trading of stocks on the key exchanges.
The Securities and Exchange Commission (SEC) has set forth penny stock guidelines when trading and these rules are:
The SEC calls for the brokerage firm to get a written agreement from the client concerning the transaction and the customer should be approved to comprehensive the transaction.
The firm is necessary by the SEC to offer the consumer with a document that outlines the risks of penny stock investing.
The rules state that the customer should be notified if there is a industry quotation and what the industry quotation is for the penny stocks the investor wishes to buy.
The firm must also disclose to the customer what their commission will be for the trade.
Penny stock guidelines also state that the firm should offer the customer with month-to-month statements that discloses the market place worth of each penny stock.
These penny stock guidelines are essential to guarantee suitable trading of penny stocks and that the investor is conscious of all dangers related with it. The SEC meticulously outlines the penny stock guidelines that brokers need to follow in order for the investor to have the best experience attainable trading penny stocks by producing the investor aware of all risks connected with penny stocks as to not lead to them to get in over their head.
In the penny stock guidelines, there is a Client Protection Rule (Rule 15c3-3) that states the handle all of the money that is paid by the investor is on the hands of the broker. Browse here at rockwell trading to compare why to consider this idea. The broker have to periodically figure up how considerably income is becoming held that belongs to the consumer or has been obtained from securities owned by the consumer. If the broker determines that there is much more money on hand than what is owed to the customer or from the buyer to the broker, the income must be placed within a reserve bank account. This money is placed inside the bank account for the sole benefit of the customers. This rule is very critical since it prevents the brokerage from using funds that belong to consumers to fund their personal enterprise.
Penny stock rules are designed to shield the consumer, the stock market, and the broker. If a broker breaks any of these guidelines set forth by the SEC, then the broker can be subject to SEC investigations that can result in serious trouble for the brokerage firm. That is why it is crucial for the investor to be conscious of the penny stock guidelines and make sure the broker is following all guidelines accordingly so that the investments of the investor are not compromised in any way..