Margin Risk Disclosure Statement
DriveWealth, LLC (“DriveWealth”), is furnishing this document to you to provide 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 DriveWealth’s Customer Agreement. If you have any questions or concerns regarding your margin account(s), please contact us.
When you purchase securities, you may pay for the securities in full or you may borrow part of the purchase price from DriveWealth. If you choose to borrow funds from DriveWealth, you will open a margin account. The securities purchased are DriveWealth’s collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and, as a result, DriveWealth can take action, such as issue a margin call and/or sell securities or other assets in any of your accounts, in order to maintain the required equity in the account.
It is important that you fully understand the risks involved in trading securities on margin. These risks include the following:
When you maintain a margin account, the firm has the right to hypothecate or lend shares held in your margin account subject to certain limitations. When shares are lent under standard stock loan agreements, the right to vote those shares goes with them. This may preclude your ability to vote those shares if a corporate vote takes place while the shares are on loan.
When shares are lent under the terms of the Margin Agreement, you are at risk of receiving payments-in-lieu of dividends where these shares are lent past record date. Such payments must be reported as ordinary income causing you to lose the benefit of preferential tax rates on dividends.
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 DriveWealth to avoid the forced sale of those securities or other securities or assets in your account(s).
DriveWealth can force the sale of securities or other assets in your margin account(s). If the equity in your margin account falls below the maintenance margin requirements or the firm's higher "house" requirements, DriveWealth can sell the securities or other assets in any of your accounts maintained at DriveWealth to cover the margin deficiency. You also will be responsible for any shortfall in the account after such a sale.
Securities or other assets can be sold without contacting you. Some investors mistakenly believe that DriveWealth must contact them for a margin call to be valid, and that DriveWealth cannot liquidate securities or other assets in their accounts to meet the call unless DriveWealth 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 interests, including immediately selling the securities without notice to the customer.
You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, DriveWealth has the right to decide which security to sell in order to protect its interests.
DriveWealth can increase its "house" maintenance margin requirements at any time and is not required to provide you advance written notice. These changes in firm policy often take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause a liquidation or sale of securities in your account(s).
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.
DriveWealth may lend Securities and Other Assets in our Margin Account to other customers or broker-dealers. When Securities and Other Assets are lent, and remains outstanding over a voting record date period declared by the issuer, you may lose your voting rights on all or a portion of your shares you hold at DriveWealth and will not be eligible to vote those shares.
Day-Trading Risk Disclosure.
DriveWealth does not promote, directly or indirectly, what is commonly referred to as day trading. Day Trading is when you are actively pursuing a trading strategy that involves buying and selling the same security on the same day. FINRA rules defined Pattern Day Trading to be a margin customer that day trades four or more times in five business days, 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 will 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 Margin Disclosure Statement. If you have any questions regarding the above Margin Disclosure Statement, please contact our Compliance Department at firstname.lastname@example.org.