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 daytrading 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.
When you day trade with funds borrowed from a brokerage 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.
Day trading on margin or short selling may result in losses beyond your initial
investment.
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.
Potential registration requirements.
Persons providing investment advice for others or managing securities accounts for others may need to register
as either an "Investment Adviser" under the Investment Advisers Act of 1940 or as a "Broker" or "Dealer" under
the Securities Exchange Act of 1934. Such activities may also trigger state registration requirements.
Risk of Lower Liquidity.
Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders
that are available in a market, the greater the liquidity. Liquidity is important because with greater
liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to
pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended
hours trading as compared to regular trading hours. As a result, your order may only be partially executed, or
not at all.
Risk of Higher Volatility.
Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the
volatility of a security, the greater its price swings. There may be greater volatility in extended hours
trading than in regular trading hours. As a result, your order may only be partially executed, or not at all,
or the price you receive when engaging in extended hours trading may be inferior to the price you would
receive during regular trading hours.
Risk of Changing Prices.
The prices of securities traded in extended hours trading may not reflect the prices either at the end of
regular trading hours, or upon the opening the next morning. As a result, the price you receive when engaging
in extended hours trading may be infertior to the price you would receive during regular trading hours.
Risk of Unlimited Markets.
Depending on the extended hours trading system or the time of day, the prices displayed on a particular
extended hours trading system may not reflect the prices in other concurrently operating extended hours
trading systems dealing in the same securities. Accordingly, the price you in one extended hours trading
system may be inferior to the price you would receive in another extended hours trading system.
Risk of News Announcements.
Normally, issuers make news announcements that may affect the price of their securities after regular trading
hours. Similarly, important financial information is frequently announced outside of regular trading hours. In
extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and
higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
Risk of Wider Spreads.
The spread refers to the difference in price between what you can buy a security for and what you can sell it
for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads
for a particular security.
Characteristics and Risks of Standardized Options
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