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FINRA Day-Trading Risk Disclosure Statement
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 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
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.