Risk Disclosure

You should consider the following points before engaging in a day trading strategy.

Day trading can be extremely risky.

Day trading generally is not appropriate for someone of limited resources and limited investment experience 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 signifcantly impair the ability of a day trader to make a proft. Of course, an investment of $50,000 or more will in no way guarantee success.

Be cautious of claims of large profts from day trading.

You should be wary of advertisements or other statements that emphasize the potential for large profts in day trading. Day trading can also lead to large and immediate fnancial 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 proft through day trading, you must compete with professional, licensed traders employed by securities frms. You should have appropriate experience before engaging in day trading.

Day trading requires knowledge of a frm’s operations.

You should be familiar with a securities frm’s business practices, including the operation of the frm’s order execution systems and procedures. Under certain market conditions, you may fnd it difcult 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 signifcantly reduce your earnings. For instance, assuming that a trade costs $8.95 and an average of 29 transactions are conducted per day, an investor would need to generate an annual proft of $64,888 just to cover commission expenses.

Day trading on margin or short selling may result in losses beyond your initial


When you day trade with funds borrowed from your brokerage frm 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 frm 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.

As disclosed in the above statement, active trading is considered to be a high-risk, speculative trading strategy and the risk of loss in electronic day trading can be substantial. You should carefully consider whether such trading is suitable for you based on your fnancial resources, investment experience and investment objectives before you enter into any trade or strategy. The following links might help you gain a greater understanding of the risks involved in electronic day trading.

Statement by Chairman Arthur Levitt Concerning Day Trading.

Day Trading: Your Dollars at Risk.

Trading in a Volatile Market

SMIA understands the growing concerns about trading in a fast market and we feel that it is very important to help protect our customers from the risks inherent in volatile markets (“fast markets”). Therefore, we want to try to inform and educate all of our customers and help you understand the risks associated with such extreme market conditions.

What are Fast Markets?

Fast markets are typically characterized as markets in which there are great fuctuations in the price of certain stocks accompanied with very heavy trading. Fast markets are often created out of a heavy demand for a certain stock on the same side of the market, and the end result is an imbalance of trade orders in one direction or another (e.g. all buy or all sell orders). What usually happens is that certain stocks, particularly Internet issuers and IPOs, gain popularity, and the sudden high demand to buy or sell these stocks outpaces the supply of the shares of the stock offered and many investors are willing to pay a higher premium for these stocks. Therefore, as the demand for these stocks increases, investors eager to trade these stocks food their brokers, and as a result, the Exchanges and Nasdaq market makers become inundated with large numbers of orders, leading to large order imbalances, systems queues and backlogs. This can cause the price of the stock to go up or down extremely fast, even faster than the quotes of the stock can be displayed. The stock of any company, not just Internet issuers or IPOs, can experience wide price fuctuations and heavy trading, which can be initiated by such events as a strong analyst recommendation or by a company news announcement.

Potential risks of trading in fast markets.

The introduction of online trading and increased accessibility to the Internet has led many investors, particularly online investors, to expect quick executions at prices at or near the quotes displayed to them on their computer screen when they are ready to place a trade. While the investor’s expectations might be met under normal market conditions, it is extremely important for the investor to realize that in today’s volatile trading environment, especially with Internet issuers and IPOs, there may be delays in the execution of their orders and trades may be executed at prices signifcantly away from the market price quoted or displayed at the time the order was entered.

Your quoted price may not be accurate.

The price of stocks and trades can move very quickly in a fast market and there can be signifcant discrepancies between the price of a stock you receive at one moment and the price at which your order is executed the very next moment. It is important to remember that in a fast market, even if you are receiving real-time quotes, they may be signifcantly different from what is currently occurring in the market. Also, the size of a quote and the number of shares available at a certain price may change very quickly, which will affect the availability of a quoted price being displayed to you.

Your market order execution price may differ from your quote.

As previously mentioned, during a fast market, investors eager to trade Internet stocks or other volatile stocks will overwhelm their brokers with orders. As a result, orders are submitted to the exchanges and Nasdaq market makers at such an extraordinary pace, that there is likely to be system queues and backlogs that can create signifcant delays. The end result is that when you place a market order under these volatile conditions, the real-time quote that you receive is actually more of an indication of what has already happened and not what is currently occurring in the market. Therefore, the quote that you receive when you place a market order under these volatile conditions is not necessarily the trade execution price you will receive.

This discrepancy in price can occur because when you place a market order in a fast market, there is a good chance, due to the infux of orders and subsequent backlog of orders, that there are other orders already ahead of your market order, since market orders are executed on a frst-come, frst-served basis. Once the orders that were placed before your market order are executed, your market order will be executed, but the price of your execution may be signifcantly different than the price that was quoted ordisplayed when you entered the order because the other orders ahead of you have affected the price of the stock.

You may experience delays in trade executions and/or trade reports.

Another effect of fast markets is that there may also be delays in trade execution and/or trade reports as a result of the extraordinary volume of orders entered. What can happen is that a number of market maker frms will discontinue their normal use of automatic execution of orders and begin handling orders manually. Firms may also reduce their size guarantees on individual stocks or groups of stocks. While these procedures are designed for the protection of the investor and of the frms themselves, they can in turn result in delays in order executions, in executions at prices signifcantly away from the price quoted or displayed at the time the order was entered and in delays in trade reports.

What sometimes happens as a result of these delayed reports is that some investors become fearful that their order has not been executed and they will attempt to cancel their market order and enter a replacement order. Market orders must be executed as promptly as possible, and it is very important to understand that it may not be feasible to cancel a market order, since it may have already been executed, even if the investor has not received a trade report confrming the execution. In order to avoid creating duplicate orders, you should keep in mind that before you change or cancel an order, there may be a delay in the trade execution report and your order may have already been executed. It is important to realize that the investor will be held responsible for the execution of a duplicate order, if the cancellation order cannot be processed in a timely fashion. Also, changing or canceling and replacing an order will not expedite the delivery of trade reports when a stock is trading in a fast market. This will actually slow the process down even more, by cluttering the trading systems with more information to process.

Market orders vs. limit orders.

Market orders:

A market order is an order to buy or sell a stock without specifying a particular price. The order will be executed as soon as possible and at the best possible price available at the time the order is received in the market. There is no guarantee that you will receive a specifc price on a market order, but you will be guaranteed an execution of a market order. Since market orders are guaranteed a prompt execution, it is rarely possible to cancel a market order.

Limit orders:

A limit order is an order to buy or sell a stock at a specifed price or better. If you place a limit order to buy a stock, you are specifying the highest price that you are willing to buy the stock at. If you place a limit order to sell a stock, you are specifying the lowest price that you are willing to sell the stock at. While a limit order allows you to specify your price, it does not guarantee that your order will be executed.

By placing limit orders, you can reduce your risk in fast markets.

It is always important to carefully decide whether you want to place a market order or a limit order. This decision is particularly important during fast, volatile markets, especially for orders for initial public offering (IPO) securities trading in the secondary market, and particularly those that trade at a much higher price than their offering price (“hot stocks”). By placing a limit order in a fast market, you can reduce your risk of receiving an unexpected execution price and it will guarantee that your buy order is not executed at a price higher than you expected.

It is not unusual to see dramatic price movements in a stock in today’s trading environment. Recently, certain “hot stocks” and IPOs trading for the frst day in the secondary market have experienced as much as a 30-point movement over a short period of time. An example of how by placing a limit order can reduce your risk is as follows: If a company has announced that it is going to go public (IPO) and has projected an initial opening price on the frst day of trading at $15, it is possible that if you place a market order to buy this stock on that day, you may end up paying $45 per share, an execution price substantially away from the market price of the stock at the time the order was placed, or in this case, the projected market price of the stock. Therefore, your risk can be greatly reduced by placing a limit order to buy this stock at a price that you are comfortable with. If you placed a limit order to buy this IPO at $15, your order would probably not have been executed, but you protected yourself from buying the stock at a price $30 higher than what you expected.

Additional risks and restrictions involved with trading in fast markets and volatile issues.

Although SMIA employs state-of-the art, high-capacity, fully redundant systems, there is the possibility that investors may suffer market losses in fast market conditions during periods of volatility in the price and volume of particular stocks. In addition, market losses are possible as a result of system problems and the inability of the investor to place buy and sell orders. Investors’ inability to place buy or sell orders and access their accounts could be due to high Internet trafc or because of systems capacity limitations. In cases where Internet trading is not accessible or has been disabled, SMIA has live registered representatives ready to take orders over the phone. However, during periods of high volume and system problems, investors may experience delays in reaching a representative. All investors should be prepared to use alternative methods of order entry during fast market conditions, which should include a contingent account at another brokerage frm.

Another important effect of trading in fast markets and in volatile issues is the possible increase on the margin maintenance requirement on certain stocks. It is important to realize that the margin maintenance requirement on certain volatile issues may be raised to as much as 100%, which can be done at the sole discretion of SMIA or its clearing frm, and without prior notice. The result of the margin maintenance requirement increase could result in unexpected margin calls for additional funds and could possibly require the liquidation of your securities to meet such margin calls. It is important to contact SMIA promptly if there is any uncertainty as to the margin maintenance requirement on any security.

Visit these sites for additional information:

FINRA Regulation Investor Resources

SEC’s Investor Education and Assistance

SEC’s The Internet and Online Trading

Special Notice about Trading outside of Core Market Hours

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 refect the prices either at the end of regular market hours, or upon the opening of 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 system may not refect 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 fnancial 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.

Risk of Lack of Calculation or Dissemination of Underlying Index Value or Intraday

Indicative Value (“IIV”).

For certain Derivative Securities Products, an updated underlying index value or IIV may not be calculated or publicly disseminated in extended trading hours. Since the underlying index value and IIV are not calculated or widely disseminated during the pre-market and post-market sessions, an investor who is unable to calculate implied values for certain Derivative Securities Products in those sessions may be at a disadvantage to market professionals.

No Support.

SMIA does not have customer service hours before 9 AM and after 5 PM Eastern U.S. time. This means that we will not attend to your emails during much of the pre- and post-market trading sessions. This greatly increases your risk of loss if you make an error or if there is a system issue because no one will attend to your call until the beginning of customer service hours. You are solely responsible for any loss that occurs in your account for any reason during the non-core session.

Since SMIA is an automated advisory platform, we do not provide phone support other than for technical support. SMIA platform provides all necessary functionalities to complete your orders be it the automated and scheduled ones, or ad-hoc orders from you.

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