Limited Purpose Margin Account Agreement
Effective Date: November 15, 2021
By applying for a Limited Purpose Margin Account (“LPMA”), you acknowledge that you have read and understood DriveWealth’s LPMA Agreement and Day Trading Risk Disclosure. All Transactions in your LPMA are subject to the terms of DriveWealth’s Customer Account Agreement in its entirety and any other written agreements between you and us, as may be amended from time to time.
You understand that your Account at DriveWealth will be established as a LPMA. This means that your LPMA does not have all of the features that a typical margin Account would offer; in particular, you will not be eligible for any extension of credit. No loans will be made to your LPMA because all Transactions in your Account will be fully paid for prior to settlement.
The sole purpose of the LPMA is to allow you to submit buy trades prior to funding your Account at DriveWealth. By establishing a LPMA, you have the flexibility to submit a buy trade today and remit payment for such trade on settlement date (the “Payment Feature”).
You agree that you are responsible for paying for all Transactions in your LPMA, in full, on settlement date. If you do not remit payment in full on settlement date, DriveWealth reserves the right to refuse to settle your Transaction and may cease offering you the Payment Feature available in the LPMA.
You understand that the Payment Feature is only applicable for buy trades. You will only have access to settled funds (i.e. free credits including cash, dividends, and corporate actions) in your LPMA for withdrawal. This means that if you submit a sell trade, the proceeds from such sell trade will not be available for withdrawal until the trade settles.
By establishing a LPMA, you understand that you are subject to FINRA’s Pattern Day Trading Rules. Day Trading is when you buy and sell the same security on the same day. Day Trading presents additional risks. Please refer to our Day Trading Disclosure Statement for additional details. You further agree that you will not engage in Pattern Day Trading in your LPMA. If you engage in Pattern Day Trading, we reserve the right to close your LPMA.
If you wish to obtain other features such as leveraged buying power then you will be required to execute a new Margin Account Agreement with DriveWealth that contains additional terms and conditions including, but not limited to, DriveWealth’s truth in lending statement.
Day-Trading Risk Disclosure.
DriveWealth does not promote, directly or indirectly, what is commonly referred to as day trading. Day Trading is when you buy and sell the same security on the same day. FINRA rules defined Pattern Day Trading to be a customer that day trades four or more times in five business days in a margin account, provided the number of day trades are more than six percent of the customer's total trading activity for that same five-day period. Day trading can be very risky and is not appropriate for customers with limited resources, limited investing or trading experience, or a lower risk tolerance.
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 system failures.
Day trading will generate substantial commissions, even if the per trade cost is low. Day trading involves aggressive trading, and generally you may pay commissions 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 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.
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.
You attest that you have read and understood this Day Trading Risk Disclosure Statement.