Day trading can be extremely risky
Day trading generally is not appropriate for individuals with limited resources, investment experience, trading experience and low risk tolerance. Any investor or trader should be prepared to lose all their investment capital in all circumstances.
Day trading can also lead to a large number of small losses which may add up to be a significant amount. There is a possibility you can lose your entire initial investment if an individual engages in trading habits that may be deemed as recklessly and irresponsible.
Day trading requires knowledge of securities markets
Day trading requires knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, experienced traders employed by securities large resourceful brokerage firms and hedge fund managers. You should have appropriate education, training and experience before engaging in day trading.
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 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.