The total daily commissions that they pay on trades may add to losses or significantly reduce earnings. Active Investing on margin or short selling may result in losses beyond the initial investment. When customers day trade with funds borrowed from the firm or someone else, they can lose more than the funds originally placed at risk. A decline in the value of the securities that are purchased may require additional funds be paid to the firm to avoid the forced sale of those securities or other securities in an investor s account. Short selling as part of a Active Investing strategy also may lead to extraordinary losses, because stock may have to be purchased at a very high price in order to cover a short position.
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.