As required by NASD Rule 2361,you should consider the following points before engaging
in Active Investing activities:
Active Investing can be extremely risky. Customers should be prepared to lose all of the funds that they use for Active Investing. They should not fund their Active Investing activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required for current income.
Customers must be cautious of claims of large profits from Active Investing. Customers need to be wary of advertisements or other statements that emphasize the potential for large profits in Active Investing. Active Investing can also lead to large and immediate financial losses.
Active Investing requires knowledge of securities markets. Active Investing requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through Active Investing, an investor must compete with professional, licensed traders employed by securities firms. An investor should have appropriate experience before engaging in Active Investing.
Active Investing requires knowledge of a firm's operations. An investor should be familiar with a securities firm's business practices, including the operation of the firm's order execution systems, procedures, and should confirm that a firm has adequate systems capacity to permit customers to engage in Active Investing activities.
Active Investing may result in large commissions. Active Investing may require an investor to trade his or her account aggressively, and pay commissions on each trade. The total daily commissions that they pay on trades may add to losses or significantly reduce earnings.
Active Investing on margin or short selling may result in losses beyond the initial investment. When customers day trade with funds borrowed from the firm or someone else, they can lose more than the funds originally placed at risk. A decline in the value of the securities that are purchased may require additional funds be paid to the firm to avoid the forced sale of those securities or other securities in an investor's account. Short selling as part of a Active Investing strategy also may lead to extraordinary losses, because stock may have to be purchased at a very high price in order to cover a short position.
EXTENDED HOURS TRADING
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 market 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 market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in extended hours trading than you would during regular market 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 market hours, or upon the opening the next morning. As a result, you may receive an inferior price in extended hours trading than you would during regular market hours.
Risk of Unlinked 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, you may receive an inferior price in one extended hours trading system than you would 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 market hours. Similarly, important financial information is frequently announced outside of regular market 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.