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Rule 2361. Day Trading
Risk Disclosure Statement
You should consider the following points before engaging
in a day-trading strategy.
For purpose 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 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 systems 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
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