Day Trading Ads: Cutting
Through the "Bull"
No risk! Guaranteed
profits! Financial freedom!
Advertisements for some
day trading systems or advisory services
make investing look like a virtual bonanza
where everyone's a winner.
But if one thing's certain
about stocks, commodity futures, options
and similar investments, it's that they're
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's 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's dangerous to fall for extravagant profit
claims. Many are based on hypothetical performance,
meaning that no trades were ever really
made. And it's 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 lose a fortune
suddenly.
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's 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's 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's smart to be wary of them. The story
may or may not be true. And it's 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're a day trader, your
best protection as an investor is to know
what you're buying, what the ground rules
are when you buy and sell, and what level
of risk you're assuming.
If you decide to do business
with a company offering day trading systems
or advisory services, it's 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 (202) 418-5320, complete an online complaint
form at www.cftc.gov/files/forms/form30.pdf,
or write: 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.
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