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 systems 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 commission 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.
Margin Disclosure Statement
is being provided to you by Terra Nova Trading, L.L.C. in order
to provide you with some basic facts about purchasing securities
on margin, and to alert you to the risks involved with trading securities
in a Margin Account. Before trading stocks in a Margin Account,
you should carefully review the section entitled “Margin Accounts”
in the Customer Agreement provided to you. Please call Terra Nova
Trading, L.L.C. if you have any questions or concerns with your
Listed Options Trading Electronic Access Disclosure
When you purchase securities, you may pay for the securities in
full or you may borrow part of the purchase price from Terra Nova
Trading, L.L.C.’s Clearing Broker. If you choose to borrow funds
from our Clearing Broker, Terra Nova Trading, L.L.C. will open a
Margin Account for you with the Clearing Broker. The securities
purchased are the Clearing Broker’s collateral supporting your loan,
and, as a result, the Clearing Broker can take action, such as issue
a margin call and/or sell securities in your Account(s), in order
to maintain the required equity in your Account(s).
It is important that you fully understand the risks involved in
trading securities on margin. These risks include the following:
You can lose more funds than you deposit in the Margin Account.
A decline in the value of securities that are purchased on margin
may require you to provide additional funds to the Clearing Broker
to avoid the forced sale of those securities or other securities
in your Account(s).
Clearing Broker can force the sale of securities or other assets
in your Account(s). If the equity in your Account(s) falls below
the maintenance margin requirements under the law, or the Clearing
Broker’s higher “house” requirements, the Clearing Broker can sell
the securities in your Account(s) to cover the margin deficiency.
You also will be responsible for any shortfall in your Account(s)
after such a sale.
Terra Nova Trading, L.L.C. or the Clearing Broker can sell your
securities or other assets without contacting you. Some investors
mistakenly believe that a firm must contact them for a margin call
to be valid, and that a firm cannot liquidate securities in their
Account(s) to meet the call unless the firm has contacted them first.
This is not the case. Most firms will attempt to notify their customers
of margin calls, but they are not required to do so. However, even
if a firm has contacted a customer and provided a specific date
by which the customer can meet a margin call, the firm can still
take necessary steps to protect its financial interest, including
immediately selling the securities without notice to the customer.
You are not entitled to choose which securities or other assets
in your Margin Account(s) are liquidated or sold to meet a margin
call. Because the securities are collateral for the Margin
Loan, Terra Nova Trading, L.L.C. or the Clearing Broker has the
right to decide which security to sell in order to protect its interests.
Clearing Broker can increase its “house” maintenance margin
requirements at any time and is not required to provide you with
advance written notice. These changes in the Clearing Broker’s
policy often take effect immediately and may result in the issuance
of a maintenance margin call. Your failure to satisfy the call may
cause the Clearing Broker to liquidate or sell securities in your
You are not entitled to an extension of time on a margin call.
While an extension of time to meet margin requirements may be available
to customers under certain conditions, a customer does not have
a right to the extension.
In order for you to have electronic access for listed option
order entry, all applicable rules and regulations must be followed,
and you may not engage in any conduct that would circumvent or violate
such rules. The following are examples of rules that apply to listed
options trading and that must be complied with. If you have any
questions or concerns about the following, please contact your registered
(1) RESTRICTION ON COMPUTER GENERATED ORDERS:
Every exchange with the exception of the Pacific Stock
Exchange (“PCX”) restricts the entry of computer-generated
orders. (On the PCX such orders are allowed but must be coded as
“CG” orders so that they are not given the same handling
as other order types.) Some human or “manual” intervention
MUST be involved in the initiating of the option order prior to
its entry electronically for exchange routing. Failure to comply
with this obligation is viewed as a serious circumvention of the
exchanges’ rules, as such failure affects the specialists’
ability to update their markets. We are allowed to route orders
electronically to the various exchanges contingent on abiding by
this rule as well as all exchange, NASD and/or SEC rules.
(2) SIMULTANEOUS BUY AND SELL LIMIT ORDERS:
Customers are prohibited from placing simultaneous or near
simultaneous buy and sell limit orders in the same option series
in contravention of exchange rules. Such conduct is inappropriate
and is deemed to be disruptive of an orderly market. By the placement
of simultaneous or near simultaneous buy and sell limit orders which
remain pending in the marketplace, customers may be deemed to be
acting in the capacity of market makers in contravention of exchange
When entering simultaneous buy and sell limit orders in the same
security or option series, one of the orders must be canceled unless
one of the orders is executed before entry of the other. Such practice
is designed to prevent any appearance of maintaining a regular or
continuous two-sided market, which may only be maintained by a qualified
Market Quote = 3.10 bid, 3.20 offer
Customer enters a limit order to buy @ 3.11 and sell @ 3.19. The
buy order is cancelled within 10 seconds after entry of the sell
order. Hence, for a period of 10 seconds there was a live bid and
offer made by the same trader or account in the same option series.
The exchanges are likely to consider this “making a two-sided
market” in contravention of exchange and SEC rules by a party
NOT registered to act as a market maker.
(3) UNBUNDLING OF ROUND LOTS:
It is against exchange rules for customers to un-bundle
round lot marketable orders (i.e., market orders or marketable limit
orders) into odd lot orders in order to effect electronic executions
on the exchange through the exchange’s automatic execution
facilities. This same rule applies on ALL option and securities
exchanges. The exchanges consider it to be a serious violation to
break up a larger order into smaller lots to take advantage of the
automatic execution systems that are intended to service small lot
retail customer orders.
Example: Breaking a 100-share order into two 50-share orders
The incentive for a customer to un-bundle a round lot order is
that an odd lot will receive immediate execution through an automatic
execution system without altering the market. Such a practice is
inappropriate and in contravention of exchange rules.
(4) 15-SECOND RULE:
With the exception of the International Securities Exchange,
all option exchanges currently restrict multiple orders on the same
side of the market (i.e., buy call/sell put or sell call/buy put)
entered on behalf of the same account and/or same beneficial owner
within 15 seconds for the same option class.
(5) ISE option rule 717 (c) (1)
For option orders for size of less than 10 contracts, clients are
prohibited from entering into the system, within 30 seconds, multiple
orders by the same account and/or trader in the same option series.
ISE rule 717 restricts such conduct as it is an unfair practice
that forces the primary market maker to be responsible for the number
of contracts necessary to post a 10-up market according to his quoting
obligation when such a market was based on a customer’s order
for size less than 10 contracts.
Order Routing and Execution Disclosure
Terra Nova Trading, L.L.C. wants to advise you of two specific
risks associated with online trading activities generally:
Extended Hours Trading Risk Disclosure
1. Fast Markets
A fast market is a high-volume trading session marked by extreme
price fluctuations and order imbalances resulting from numerous
investors entering buy or sell orders for the same security simultaneously.
Because of these imbalances, wide price variances in short periods
of time are common. On any given day, fast markets can affect a
particular security, groups of securities or the market as a whole.
Fast markets can be caused by material news announcements, market
developments and even trading halts taking place in less volatile
securities. The ability to execute orders in fast market conditions
may be severely limited, and order execution may be delayed significantly.
Furthermore, market orders entered in fast market conditions may
be executed at prices that are significantly different from the
prices quoted at the time the orders were entered. Please bear these
factors in mind when routing market orders through Terra Nova Trading,
2. Use of Automated Systems
Terra Nova Trading, LLC utilizes a variety of automated order entry
and order routing systems and technologies. These systems and technologies
greatly enhance our ability to transmit your orders promptly, to
compare prices across markets and to minimize the likelihood of
errors. However, these systems and technologies also are subject
to periodic disruption, failure or interruption. While we strive
to utilize systems and technologies that are reliable and to make
alternative systems or technologies available to you in the event
of such an occurrence, you should be aware that your ability to
promptly execute your orders could be adversely affected if such
disruption, failure or interruption were to occur.
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
Terra Nova Trading, L.L.C. Penny Stock Trading
The risk of loss in trading of penny stocks can be substantial.
Terra Nova Trading, L.L.C. does not provide investment advice, recommendations,
tax advice or legal advice regarding the suitability of penny stocks,
a particular execution venue or the profitability of a transaction
Other persons, such as educators, newsletter writers, other broker/dealers,
independent contractors or other customers, who make investment
recommendations or suggestions or who provide Terra Nova Trading,
L.L.C. with names of prospective customers, are not permitted to
solicit or accept accounts or orders or to act or say anything on
behalf of Terra Nova Trading, L.L.C. Furthermore, Terra Nova Trading,
L.L.C. is not responsible for the accuracy or completeness of any
information or advice you may have received or receive in the future
from any person not employed by Terra Nova Trading, L.L.C. regarding
stock, stock option, commodity or commodity option trading or the
risks involved in such trading, and Terra Nova Trading, L.L.C. is
not be responsible for any loss to you resulting from any firm or
individual supplying you with advice or information such as quote
data, position information, etc.
Important Information on Penny Stocks
Penny stocks can be very risky. Trading in penny stocks may result
in the loss of part or all of your investment. Because of significant
volatility, large dealer spreads and very limited market liquidity,
you understand that typically you will not be able to sell a penny
stock immediately back to the dealer at the same price it sold the
stock to you. In some cases, the stock may fall quickly in value.
Likewise, prices often are not available.
Penny stocks are low-priced shares of small companies not traded
on an exchange or quoted on NASDAQ. Generally, a penny stock is
a security that:
- Is priced under five dollars;
- Is not traded on a national stock exchange or on NASDAQ (the
NASD’s automated quotation system for actively traded stocks);
- May be listed in the “pink sheets” or the NASD OTC
- Is issued by a company that has less than $5 million in net
tangible assets and has been in business less than 3 years, by
a company that has under $2 million in net tangible assets and
has been in business for at least three years, or by a company
that has revenue of $6 million for 3 years.