Day Trading

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. If you are a day trader, or are thinking about day trading, read our publication, Day Trading: Your Dollars at Risk. We also have warnings and tips about online trading and day trading.

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." You can read his entire testimony and opening statement on day trading.

The North American Securities Administrators Association, Inc. issued a report that describes "the major problems and abuses" in the day trading industry and summarizes the legal actions brought to date. You'll find that report and other information about day-trading in the "NASAA Library" under the "Reports" section on NASAA's website.

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. For more information, you can read the NASD's Notice to Members and the New York Stock Exchange's Information Memo. A full discussion of the rationale for the changes as well as extended discussion of the numerous comments both for and against the changes can be found in the SEC Approval Order in the Federal Register.

The Connecticut Council on Problem Gambling has a quiz to help you decide if you are gambling in our markets and where to go for help.