What are the reasons for which one can get penalized?

<p id="isPasted">Penalties in trading are typically imposed by brokers or regulatory bodies like SEBI (Securities and Exchange Board of India) for violating specific rules and regulations designed to ensure fair and orderly markets.&nbsp;</p><p><strong>Brokerage and Exchange Rule Violations</strong></p><ul><li>Margin Shortfall: Not having enough funds in your account to cover the required margin for your trades is a common reason for a penalty, often calculated as a percentage of the shortfall amount.</li><li>Good Faith Violations / Free-Riding: This occurs when you buy and sell securities without having the settled funds to pay for the initial purchase (using unsettled funds from a prior sale). Repeat offenses can lead to trading restrictions, such as a 90-day cash-account restriction.</li><li>Pattern Day Trading (PDT) Violations: In some markets (like the U.S.), making more than a certain number of day trades in a limited period with an account balance under a specific threshold can lead to an account being flagged and restricted.</li><li>Frequent Trading/Market Timing: Some mutual funds restrict excessive or rapid movement of money into and out of their funds, as it can disrupt fund management and harm other shareholders. Violating these rules can lead to warnings or account restrictions.</li><li>Position Limit Violations: Exceeding the maximum allowed position in a specific stock or derivative product can result in fines and the forced closing of positions.</li><li>Unauthorised Trading: Brokers who execute trades without valid client consent (e.g., recorded phone calls, written instructions) can face significant penalties and be liable for client losses. </li></ul><p><strong>Regulatory and Legal Violations</strong></p><ul><li>Market Manipulation: Engaging in activities that artificially inflate or depress security prices, such as "pump and dump" schemes, "spoofing" (placing large orders with the intent to cancel), or front-running (trading on non-public client order information). This can lead to heavy fines, disgorgement of profits, trading bans, and even imprisonment.</li><li>Insider Trading: Trading on material, non-public information. This is a severe offense punishable by substantial fines (potentially up to three times the profit made) and imprisonment.</li><li>FEMA Violations (in India): Forex trading in India is strictly regulated and only permitted for INR-paired currencies through SEBI-registered brokers on authorized exchanges. Trading non-INR pairs or using unauthorized foreign platforms is illegal under the Foreign Exchange Management Act (FEMA) and can result in significant fines and imprisonment.</li><li>Failure to Submit Documents/KYC Non-Compliance: Not providing required Know Your Customer (KYC) documents, income proofs, or having expired documents can lead to account suspension or freezing.</li><li>Failure to Pay Dues: Neglecting to pay fees, subscriptions, or fines imposed by the exchange can result in penalties or the suspension of trading privileges. </li></ul>