Risk with short term investments

• Retail investors should understand that all investments have risk, and that short-term investing in a volatile market carries significant risk of loss.
• Short-term trading, including trading aided by the use of margin or options, can lead to significant and unanticipated losses for retail investors.
• Investing in Bubbles or Manias - Financial “manias” or a “bubble” is the rapid rise in the price of an investment, reflecting a high degree of collective enthusiasm or exuberance regarding the investment’s prospects. This rapid rise is usually followed by a contraction in the investment’s price. The contraction, or “panic” occurs when there is wide-scale selling of the investment that causes a sharp decline in the investment’s price.
• Momentum Investing - Another investing strategy that can pose high risks for retail investors is “momentum investing.” An investor using a momentum investing strategy seeks to capitalize on the continuance of existing trends in the market. A momentum investor believes that large increases in the price of an investment will be followed by additional gains and vice versa for declining values. If that belief turns out to be incorrect, it can lead to significant losses.
• Noise Trading - Noise trading occurs when an investor makes a decision to buy or sell an investment without the use of fundamental data (that is, economic, financial, and other qualitative or quantitative data that can affect the value of the investment). Noise traders generally have poor timing, follow trends, and overreact to good and bad news in the market.
• All investing has risks. If you invest using margin, options, or short sales these risks may be magnified. Margin trading (using borrowed money to buy securities) can be very risky and is not appropriate for every investor. Before you invest using margin consider that:
  1. You can lose more money than you have invested;
  2. You may have to deposit additional cash or securities in your account on short notice to cover market losses (a “margin call”); and
  3. Your brokerage firm can increase its margin requirements at any time and is not required to provide you with advance notice.