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 requirements.