Government rule??????

Discussion in 'Retail Brokers' started by vetten, May 27, 2005.

  1. vetten


    hello folks,:)

    how are you all?

    I`m a penny stocks trader but I get restricted in my trading, because I can only place limit orders to the amount of cash
    I have in my account.

    I`m not asking for margin here, although it is a margin account.

    I asked my broker if I could place limit orders twice my cash
    balance, so if I have say $ 40,000 in my account to be able to
    place $ 80,000 worth of limit orders.

    But my broker replied that that scenario is against government

    Is that true?????

    And if not: which brokers would let me do this?

    I appreciate your replies and thanks for your help
  2. I might be mistaken, but my recollection is that stocks which trade below a particular per share price ($5.00), are not considered to be marginable. So it may be the stocks you're trading and not your broker (although the specific share price cutoff may be determined by your broker).
  3. vetten


    thanks jango

    you`re right you cant buy penny stocks on margin, but that is not what I am after.

    I just wanted to be able to place more limit orders than I have
    cash in my account.
    say to the tune of $ 80,000 while I have cash of $ 40,000.

    I would never get the full $ 80,000 I ordered, but only around
    $ 10,000 so I can easily pay for them cash without needing margin.

    but my brokers says that that is against government rules.

    I would think that this is up to the broker

    what do you think?

    have a primo day:)
  4. Sorry, I misunderstood your question.

    You might be certain that in a particular batch of orders, only a small percentage of shares bid will get filled; however, that would be gambling for your broker. What if all of your orders got filled resulting in an amount of money that exceeded the equity in your account? Also, your simultaneous orders would be somewhat meaningless since there is a contingency attached to them (i.e., that other orders are not filled first).

    That's just my two cents; I'm not sure what the exact rules are, but what you're proposing doesn't mesh with common sense (no offense intended).

  5. vetten


    hi jango

    thanks for your reply

    and yes it is possible that all my limit orders will be filled and that the broker will run a risk.

    but a government rule?????:confused:
  6. lescor


    btw, the non-marginable <$5 stocks isn't a government rule, but is implemented by many, but not all, brokers.

    Some allow it and require a higher margin amount, and others don't put any restrictions on it.
  7. vetten


    good day to you lescor,

    thank you for your reply

    if I had a broker that would let me buy very low priced penny stocks on margin, then that would be the end of my problems.

    not that I would need the margin part, but at least I can place
    a lot of limit orders, far more than what I have in cash in my account.

    I`m talking here about penny stocks priced under 1 cent

    could you name some brokers that would allow these stocks to be margined?

    thank you very much for your help:)

    This may help somewhat.

    Sec. 220.11 Requirements for the list of marginable OTC stocks and the list of foreign margin stocks.

    (a) Requirements for inclusion on the list of marginable OTC stocks. Except as provided in paragraph (f) of this section, OTC margin stock shall meet the following requirements:
    (1) Four or more dealers stand willing to, and do in fact, make a market in such stock and regularly submit bona fide bids and offers to an automated quotations system for their own accounts;
    (2) The minimum average bid price of such stock, as determined by the Board, is at least $5 per share;

  9. vetten


    thank you don for your time to point that out to me.

    so no margin for my penny stocks!

    now I know you have a lot of experience in trading.

    what do you reckon:
    I`m not wanting margin on these penny stocks, but
    is there a government rule that forbids brokers to let me place limit orders for say $ 80,000 while having $ 40,000 cash in the account?

    your opinion is much appreciated

    have a primo day

  10. The problem lies in the possibility that you could get filled on the orders above your cash. It wouldn't theoretically be against the rules for you to place the orders, but you MIGHT get filled on them above your cash amount which would cause a reg T call. The broker would run into problems with regulators if they allow you to violate reg T. I highly doubt any broker would allow you to do that.
    #10     May 27, 2005