You should consider the following points before engaging in a day-trading
strategy. For purposes of this notice, a "day-trading strategy" means an overall
trading strategy characterized by the regular transmission by a customer of
intra-day orders to effect both purchase and sale transactions in the same
security or securities.
Day trading can be extremely risky. Day trading generally is not appropriate for
someone of limited resources and limited investment or trading experience and
low risk tolerance. You should be prepared to lose all of the funds that you use
for day trading. In particular, you should not fund day-trading activities with
retirement savings, student loans, second mortgages, emergency funds, funds set
aside for purposes such as education or home ownership, or funds required to
meet your living expenses. Further, certain evidence indicates that an
investment of less than $50,000 will significantly impair the ability of a day
trader to make a profit. Of course, an investment of $50,000 or more will in no
way guarantee success.
Be cautious of claims of large profits from day trading. You should be wary of
advertisements or other statements that emphasize the potential for large
profits in day trading. Day trading can also lead to large and immediate
financial losses. Day trading requires knowledge of securities markets. Day
trading requires in-depth knowledge of the securities markets and trading
techniques and strategies. In attempting to profit through day trading, you must
compete with professional, licensed traders employed by securities firms. You
should have appropriate experience before engaging in day trading.
Day trading requires knowledge of a firm's operations. You should be familiar
with a securities firm's business practices, including the operation of the
firm's order execution systems and procedures. Under certain market conditions,
you may find it difficult or impossible to liquidate a position quickly at a
reasonable price. This can occur, for example, when the market for a stock
suddenly drops, or if trading is halted due to recent news events or unusual
trading activity. The more volatile a stock is, the greater the likelihood that
problems may be encountered in executing a transaction. In addition to normal
market risks, you may experience losses due to system failures.
Day trading will generate substantial commissions, even if the per trade cost is
low. Day trading involves aggressive trading, and generally you will pay
commissions on each trade. The total daily commissions that you pay on your
trades will add to your losses or significantly reduce your earnings. For
instance, assuming that a trade costs $16 and an average of 29 transactions are
conducted per day, an investor would need to generate an annual profit of
$111,360 just to cover commission expenses.
Day trading on margin or short selling may result in losses beyond your initial
investment. When you day trade with funds borrowed from a firm or someone else,
you can lose more than the funds you originally placed at risk. A decline in the
value of the securities that are purchased may require you to provide additional
funds to the firm to avoid the forced sale of those securities or other
securities in your account. Short selling as part of your day-trading strategy
also may lead to extraordinary losses, because you may have to purchase a stock
at a very high price in order to cover a short position.
Potential Registration Requirements. Persons providing investment advice for
others or managing securities accounts for others may need to register as either
an "Investment Advisor" under the Investment Advisors Act of 1940 or as a
"Broker" or "Dealer" under the Securities Exchange Act of 1934. Such activities
may also trigger state registration requirements.