When creating a brokerage account at Charles Schwab, I see:
January 05, 2023: Funds post. You can buy most securities, but we restrict withdrawals and trading of some securities, including all options and stocks trading under $1 per share.
Why do they mention "including all options and stocks trading under $1 per share" explicitly? Are they subject to some special treatment?
I suppose they want to ensure they have adequate margin as penny stocks/low-value options can have poor liquidity and high volatility.
Yes. These are called "penny stock" and have special rules about them. They're usually traded OTC, with less regulation and much more risk.
Penny stocks are subject to online fraud. Specifically, somebody steals passwords and illegally gains access to other's accounts. Due to the low liquidity of some penny stocks, fraudsters can drive the price up significantly by placing a large buy order. They then sell the stock with another account they control, gaining a large profit. In other cases, they may charge others with penny stock positions for this service.
The money from the fraudulent buy order likely comes from liquidating the stolen account's positions. The restrictions on unsettled funds trading give more time to detect this fraud, otherwise the liquidation and purchase can come nearly immediately.
You'll find many brokers have similar security measures. Mine requires 2-factor verification for any penny stock trades.
