Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time.
Before a U.S. Senate subcommittee, former SEC Chairman Arthur Levitt testified that, "I am concerned that some day traders don't fully understand the level of risk they are assuming. I am concerned that some people may be lured into the false belief that day trading is a surefire strategy to make them rich."
The National Association of Securities Dealers, Inc. has issued several press releases on day trading. The NASD's release of July 29, 1999, describes a NASD rule proposal that was approved by the SEC on July 10, 2000. The rule requires brokerage firms to tell a customer about the risks of day trading before an account is opened and to determine if day trading is appropriate for that customer.
In addition, on February 27, 2001, the SEC approved rule changes proposed by the New York Stock Exchange and NASD aimed at imposing more stringent margin requirements for day-trading customers. Under these rules, customers who are deemed "pattern day traders" must have at least $25,000 in their accounts and can only trade in margin accounts.
Read about the risks of Day Trading.
