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Investor Alert |
| Past Alerts Click Here | May 2007 |
| Day Trading Margin Rules "Pattern Day Traders" who have $25,000 or more in equity in their margin account have day trading buying power for marginable securities equal to four (4) times their excess equity. (Excess equity is equal to account equity minus the maintenance requirement.) In other words, a Pattern Day Trader will be able to day trade marginable securities four (4) times their excess equity. A client may be deemed a Pattern Day Trader by any of the following means:
A Pattern Day Trader is required to maintain a minimum of $25,000 equity in their margin account. If the account equity falls below $25,000, an equity deficiency notice will be issued and the client will be required to deposit additional cash and/or securities to bring the account up to the $25,000 minimum account equity. Until the margin account reaches the $25,000 minimum equity, the account will be restricted and further day trading will not be permitted. Once a client is deemed a Pattern Day Trader, the client will always be deemed a pattern day trader unless the client notifies us in writing that they no longer intend to day trade. However, if the client then executes four (4) or more day trades within five (5) business days, the client will once again be deemed a "pattern day trader" and will be required to maintain $25,000.00 minimum equity or discontinue day trading. If a Pattern Day Trader day trades in excess of their day trading buying power, Newedge will issue a day trading margin call. Until funds are received, the account will be restricted to day trading buying power of two times excess equity. If the call is not met by day five, the account will be restricted to cash available only for ninety (90) days or until the call is met. Funds deposited to meet the day trading call must remain in the account for at least two business days before they may be withdrawn. Please note that while a Pattern Day Trader may day trade up to four (4) times their excess equity, if the client does not close the position the same day, the Regulation T Requirement for the transaction must be met. This means that although buying power for day trades is four (4) times excess equity, buying power for non-day trades is unchanged. Although these recent regulatory changes now allow more leverage for certain day traders, clients should continue to make intelligent and informed investment decisions based on their investment objectives. For clients who elect to day trade please read the following disclosure. 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. 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. Newedge USA, LLC Mailing: 220 Bush Street, Suite 650, San Francisco, CA 94104 Member NYSE, NASD, MSRB, NFA, SIPC and other principal exchanges Customer Service can be reached at 888-781-0283 or by email at Service@NewedgeGroup.com. Customer Service Fax is (415) 520 - 5633 All contents of this document are for educational purposes only. Any graphics are for illustration purposes only. Newedge USA does not offer investment advice. Newedge USA, LLC ("Newedge"), a member of SIPC and a broker-dealer and futures commission merchant registered under US laws, makes no representations or warranty regarding the appropriateness of any transaction for any person. This sales literature is solely for informational purposes, and is not to be construed as an offer to buy or sell any security. The information herein is based on sources we believe to be reliable, but is not guaranteed by us and may be incomplete or condensed. Any opinions expressed herein are statements of Newedge's or third-party sources' as of the date indicated and are subject to change without notice. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. All futures, securities and options trading entails significant risks, which should be fully understood prior to trading. Consult your account representative for details. Past performance is not a guarantee of future results. Except as indicated otherwise, Newedge and the Newedge Group refer to all companies or divisions of companies owned directly or indirectly by Societe Generale that include the "Newedge" name. Not all products and transactions offered by Newedge are available from all companies of the Newedge Group. The views expressed herein may differ from those expressed by affiliates of Newedge, and such views do not represent or purport to represent those of such affiliates. Newedge, or one or more of its employees, may have a position in any of the securities discussed herein, including options, rights or warrants to purchase such securities. Date of first use: May 1, 2007. Copyright Newedge USA, LLC 2007. All rights reserved. |