Active Trading or “Day Trading” Strategies

"Day trading" is characterized by the regular transmission of intraday orders to both buy and sell the same security or securities. You should carefully consider the risks of such a strategy and consult with your Investment Professional as to its appropriateness given your financial situation and investment objectives. If you have additional questions regarding this or any other aspects of your account, please call the KMS Home Office (206.441.2885).

Special Risks and Considerations:

  • Day trading can be extremely risky. It is inappropriate for someone of limited resources, limited investment or trading experience, and low risk tolerance. You should be prepared to lose all the funds 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. Certain evidence indicates that an investment of less than $50,000 will significantly impair the ability of a day trader to make a profit. And there is no level of investment that guarantees success.

  • Be cautious of claims of large profits from day trading, and extremely wary of advertisements or other statements that tout 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 securities markets, trading techniques and strategies. 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 and business practices, including the firm's order entry and execution systems. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. For example, the market for a stock may suddenly drop, or trading may be halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood of encountering problems in executing a transaction. In addition to normal market risks, you may experience losses due to system failures.

  • Day trading involves aggressive trading and can generate substantial commissions even if the per-trade cost is low. Total daily commissions that you pay on your trades will add to your losses or significantly reduce your earnings. For instance, assuming a trade costs $19 and an average of 20 transactions are conducted per day, an investor would need to generate an annual, underlying trading profit of $91,200 just to cover costs.

  • Day trading on margin or short selling may result in losses beyond your initial investment. Trading with borrowed funds can lead to losses in excess of the funds you originally placed at risk. A decline in the value of securities purchased may require you to provide additional funds to the firm to avoid the forced sale of those 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.

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