How one gets penalised?

<p id="isPasted">In trading, individuals can be penalized both by their brokerages/exchanges for operational mistakes and by regulatory bodies for serious legal violations like market manipulation or insider trading. Penalties range from minor fees and position closures to significant fines, trading bans, and even imprisonment.&nbsp;</p><p><strong>Operational Penalties (by Brokers/Exchanges)</strong></p><p>These penalties are typically automated charges for failing to meet specific transactional obligations.&nbsp;</p><ul><li>Margin Shortfall Penalties: The most common penalty occurs when a trader's account falls below the required maintenance margin due to market movements or insufficient funds.</li><li>Charges: A percentage of the shortfall amount is charged daily (e.g., 0.5% for minor shortfalls, up to 5% for repeated instances) until the situation is resolved.</li><li>Consequences: The broker may issue a "margin call" and, if the shortfall isn't covered, may automatically liquidate (square off) positions without notice to recover the funds, often at unfavorable prices.</li><li>Position Limit Violations: Exceeding the maximum allowed position in a specific security or contract can result in a monetary fine, often a percentage of the excess value.</li><li>Trade Settlement Failures: Failing to deliver securities (in case of selling short without borrowing) or funds by the settlement date can lead to penalties based on the trade value and potential forced close-outs of positions.</li><li>Cheque Bounce/Failed Payments: If funds used to cover margin requirements or trade settlements are unavailable (e.g., a bounced check), penalties are levied, sometimes retrospectively from the original trade date. </li></ul><p><strong>Legal and Regulatory Penalties (by Regulators like SEBI/SEC)</strong></p><p>These are severe consequences for engaging in illegal activities that compromise market integrity.&nbsp;</p><ul><li>Insider Trading: Trading securities using material, non-public information is a serious criminal offense.</li><li>Penalties: Can include heavy financial fines (up to ₹25 crore or three times the profit made in India, or up to $5 million in the US), disgorgement of ill-gotten gains, trading bans, and imprisonment for several years.</li><li>Market Manipulation: Artificially influencing the price or volume of a security through deceptive practices like spreading false rumors, front-running, or creating artificial volume through non-genuine trades (reversal trades).</li><li>Penalties: May involve substantial fines, bans from participating in the securities market, suspension of trading terminals, and potential criminal charges leading to jail time.</li><li>Unauthorized/Illegal Trading Platforms: Trading on platforms not authorized by local regulators is a penal offense. In India, for example, trading certain foreign currency pairs on unauthorized platforms can lead to fines of up to ₹10,000 per day and potential imprisonment. </li></ul><p>Understanding and strictly adhering to all regulatory and broker rules is crucial for avoiding these potentially costly penalties.</p>