General Securities Sales Supervisor (Series 10) Practice Exam 2025 - Free Series 10 Practice Questions and Study Guide

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What does the term "cheap stock" refer to in margin requirements?

Stocks worth less than $10

Stocks worth less than $5

The term "cheap stock" in the context of margin requirements specifically refers to stocks that trade at a price below a certain threshold, which is generally considered to be $5 per share. This classification is important for margin requirements set by the major exchanges and the Financial Industry Regulatory Authority (FINRA). When stocks are deemed "cheap," they are subject to more stringent margin requirements due to their higher risk and lower price point. Stocks priced below this level can face increased volatility and liquidity concerns, thus making them less favorable as margin securities.

The thresholds for margin requirements are put into place to protect investors and maintain the integrity of the market. Specifically, lower-priced stocks can exhibit wider price swings and are often more susceptible to market manipulation, resulting in a heightened risk profile for both investors and brokers.

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Stocks with no intrinsic value

Stocks that are illiquid

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