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No risk! Guaranteed profits!
Financial freedom!
Advertisements for some day trading systems or advisory
services make investing look like a virtual bonanza where everyone is a
winner.
But if one thing is certain about stocks, commodity futures, options and
similar investments, it is that they are uncertain. Any company that
guarantees huge earnings is feeding you a load of " bull."
Day traders spend their time at computer screens, quickly buying and selling
investments within a single day ( sometimes within just a few hours or minutes
) and reacting to continual market swings. They trade in the hope that their
investments will soar in value in the short time they hold them, and net them
quick profits. Often they use computerized systems or advisory services that
claim to be able to predict the markets.
No doubt about it, this is a risky business. Despite the picture of investing
success painted by some day trading companies' ads, far more day traders lose
money than make it. Some traders lose big, forfeiting their student loan
money, second mortgages or retirement funds. In addition, people who trade on
margin or sell short risk losing much more than their investment.
Every time investors make a trade, they pay a commission. That is true whether
they buy or sell and whether they make money or lose their shirt.
Read Between the Lines
Learning the language of day trading can help you separate fact from fantasy
when reading an ad or listening to a commercial.
If the ad promises... "The potential
to make a six or seven figure annual income from trading is at the ends of
your fingertips."
Remember that... It is dangerous to fall
for extravagant profit claims. Many are based on hypothetical performance,
meaning that no trades were ever really made. And it is far from certain that
a bona fide trader will be able to place the same trades as the hypothetical
trader. Actual results may not match the hypothetical performance and
even trading advisors with a long track record of success can suddenly lose a
fortune.
If the ad promises: 'The absolute
best trading system with a profit-to-loss ratio of 12-to-1 and an average
return better than 18 percent per trade..'
Remember that: Even if the system really
has had such successes, past performance is no guarantee of future results and
nobody ( not even financial experts ) can guarantee what the market is going
to do from day to day or even minute to minute. No matter how strong the
market may seem and how solid a particular company may appear, prices can
skyrocket or plummet faster than you can say "Wall Street."
If the ad promises: "Our software
signals precisely when to buy and when to sell a particular security, allowing
you the opportunity to make money regardless of the market going up or down..'
Remember that: As tempting as it might be
to leave your investment decisions in the hands of a software program, the
ultimate responsibility for protecting your investment belongs to you. No
matter how sophisticated a system for evaluating investments might sound,
there is no way to guarantee the future performance of investments. If there
were, you can be sure that the software developers would be making their money
using their programs themselves, not promoting it to others.
If the ad promises: 'Our
recommendations returned an average annual return of 250 percent. If you can
just follow our recommendations, you will make money...'
Remember that: There is no fail-safe way
to invest without any risk. High-yield investments tend to involve high risk.
Be particularly suspicious of sales pitches that play down risk or portray
written risk disclosures as routine formalities. Believe the risk disclosures
that say you could lose your whole investment. Jumping on a "hot" investment
tip is a good way to get 'burned.'
If the ad promises: 'Timothy Smith,
who used our system wrote to us, '... at night I work with your trading system
for a few hours and am averaging more than $500 a day.'
Remember that: Everyone loves a good
testimonial, but it is smart to be wary of them. The story may or may not be
true. And it is highly unlikely that the testimonial reflects the actual
experiences of other people using the system or advisory service - or the
result you're hoping for.
Invest Carefully
Whether or not you are a day trader, your best protection as an investor is to
know what you are buying, what the ground rules are when you buy and sell, and
what level of risk you are assuming.
If you decide to do business with a company offering day
trading systems or advisory services, it is important to check it out before
putting your money on the line.
- If the trading system involves stocks, call your state securities
regulator to find out whether the company has ever been disciplined or has
complaints against it. Look in the government section of your phone book or
visit the North American Securities Administrators Association's website at
www.nasaa.org. You also can
get a firm's disciplinary history by calling the National Association of
Securities Dealers-Regulation Public Disclosure Program at 1-800-289-9999 or
by visiting its website at
www.nasdr.com/2000.htm.
- If the trading system involves commodity futures or options, call the
National Futures Association toll-free at 1-800-621-3570 or 1-800-676-4NFA
(4632).
In addition:
- Look carefully at the basis for any claims the company makes.
- Talk to other traders who have used the company.
- Check out the company with the Better Business Bureau and the local
consumer protection agency.
To File a Complaint
To file a complaint regarding a commodity futures or
options investment, contact the Commodity Futures Trading Commission at (866)
366-2382, complete an online complaint form at
www.cftc.gov, or write
to:
Commodity Futures Trading Commission, Division of Enforcement, Three Lafayette
Centre, 1155 21st Street, NW, Washington, DC 20581.
To file a complaint regarding a stock investment, contact
the Securities and Exchange Commission by phone at (202) 942-7040; online at
www.sec.gov/invkhome.htm; or
by writing: Securities and Exchange Commission, Office of Investor Education,
450 5th Street NW, Washington, DC 20549-0213.
Source: The U.S. Federal Trade Commission For The
Consumer
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