Risk Disclosure Statement
Day Trading Disclosures
Active trading, or day trading, can be extremely risky. Day trading on margin or short selling may result in losses beyond your initial investment.
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.
Market Volatility, Market Orders and Limit Orders
I understand that, whether I place a market or limit order, I will receive the price at which my order is executed in the marketplace. Particularly during periods of high volume, illiquidity, fast movement or volatility in the marketplace, the execution price received may differ from the quote provided on entry of an order, and I may receive partial executions of an order at different prices. I understand that Lightspeed Trading is not liable for any such price fluctuations. I also understand that price quotes generally are for only a small number of shares as specified by the marketplace, and larger orders are relatively more likely to receive executions at prices that vary from the quotes or in multiple lots at different prices.
Securities may open for trading at prices substantially higher or lower than the previous closing price or the anticipated price. If I place a market order (whether during normal market hours or when the market is closed), I agree to pay or receive the prevailing market price at the time my market order is executed. I understand that the price I pay may be significantly higher or lower than anticipated at the time I placed the order.
To avoid buying a security at a higher price and possibly exceeding my buying power, or selling it at a lower price than I desire, I understand my option to enter a limit order. I also understand that limit orders may not be executed at any particular time, or at all if there is not sufficient trading at or better than the limit price I specify.
In a fast market (i.e., when there is a sudden increase in demand or supply of shares in a particular security), the bid and ask prices of securities may change rapidly. Although all securities have the potential to be exposed to fast market conditions, securities of companies that have recently made initial public offerings (IPOs) may be particularly prone to price volatility. For example, if I place market orders for securities issued as part of an IPO where securities have recently begun trading in the secondary market, I understand that there is substantial risk of receiving execution that is substantially away from the market price at the time I placed the order. As a result of these fast market or volatile market conditions, large order imbalances, system queues, high volume of orders or trading, Internet communications delay, system outages and capacity limitations, there may be delays in the entry and execution of my orders. Therefore, the price of the securities that I want to trade may change significantly between the time I obtain a price quote and placement of my order and the time of order execution.
Bulletin Board/Pink Sheet Stocks
Bulletin board, pink sheet and other thinly-traded securities (”bulletin board stocks”) present particular trading risks, in part because they are relatively less liquid and more volatile than actively traded securities listed on a major exchange or NASDAQ. I understand that bulletin board stocks may be subject to different trading rules and systems than other securities and that I may encounter significant delays in executions, reports of executions and updating of quotations in trading bulletin board stocks. Lightspeed Trading in its sole discretion may require limit orders on certain bulletin board stock transactions. The Market Data supplied by Lightspeed Trading regarding bulletin board stocks is updated from time to time, but may not be current at any given point in time.
Options Trading
I understand that options trading is highly speculative and contains a high degree of risk and that options trading is not suitable for all investors. I agree that prior to completing the “Options” section of the Account Application; I will carefully review and consider my financial situation, risk tolerance and investment objectives. I will only apply for an Options Account if, based on that review, I am fully prepared financially to undertake such risks, withstand any and all Losses incurred, including total loss of premium, plus transaction costs. I understand that Lightspeed Trading reserves the right to terminate or restrict my options trading privileges if it determines that my trading activities or option positions present a risk to Lightspeed Trading.
(f) Uncovered Options Disclosure
There are special risks associated with uncovered options writing which expose the investor to potentially significant loss. Therefore, this type of strategy may not be suitable for all customers approved for options transactions.
1. The potential loss of uncovered call writing is unlimited. The writer of an uncovered call is in an extremely risky position and may incur large losses if the value of the underlying instrument increases above the exercise price.
2. As with writing uncovered calls, the risk of writing uncovered put options is substantial. The writer of an uncovered put option bears a risk of loss if the value of the underlying instrument declines below the exercise price. Such loss could be substantial if there is a significant decline in the value of the underlying instrument.
3. Uncovered options writing is thus suitable only for the knowledgeable investor who understands the risks, has the financial capacity and willingness to incur potentially substantial losses and has sufficient liquid assets to meet applicable margin requirements. In this regard, if the value of the underlying instrument moves against an uncovered writer’s options position, the investor’s broker may request significant additional margin payments. If an investor does not make such margin payments, the broker may liquidate stock or options positions in the investor’s account without notice to the investor in accordance with the investor’s margin agreement.
4. For combination writing, where the investor writes both a put and a call on the same underlying instrument, the potential risk is unlimited.
5. If a secondary market in options were to become unavailable, investors could not engage in closing transactions and an options writer would remain obligated until expiration or assignment.
6. The writer of an American-style option is subject to being assigned an exercise anytime after he has written the option until the option expires. By contrast, the writer of a European-style option is subject to exercise assignment only during the exercise period.
More information about uncovered options sales is available in the chapter entitled “Risks of Buying and Writing Options” contained in the “Characteristics and Risks of Standardized Options” document. This statement is not intended to enumerate all of the risks entailed in writing uncovered options.
After-Hours and Pre-Market Trading and Other Terms and Disclosures
Lightspeed Trading from time to time will inform me of additional terms, conditions and disclosures relating to particular products or services, including the Service and after-hours or pre-market trading sessions. By entering into this Agreement, I agree to abide by all such terms and conditions and disclosures, (a copy of which is attached to this Agreement as Supplement 2).