Sorting the Wheat From the Chaff - How to Invest Carefully

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).

Free online trading is a popular phrase these days. All over the Internet there are sites that promise free trading and high profits. Unfortunately, there are few things in life that are ever really free and online trading is no exception.

Another thing to look out for is companies that offer commission free online trading. While their motives may initially appear gallant, the truth of the matter is that no company can remain afloat without making a profit. They may offer 0% commission, but the chances are very good that there will be other hidden costs involved such as an exorbitant monthly fee for using their trading software. Alternatively, the free commission may only apply if you make a certain amount of deals every month without fail. Read the terms and conditions very carefully and do not hesitate to give brokers a call should you have any questions. Honest companies will have no problem explaining their policies to you in great detail, while fraudulent individuals are likely to be more tight lipped.

Promises of free trading are not the only trading scams that are popping up on the Internet. Sadly, there are a number of dishonest companies out there who make their profits by exploiting the naivety of less knowledgeable individuals all over the world. There are hundreds of online stock trading scams floating around. Some can be spotted from a mile off, while others are slightly more difficult to identify. Some of the more common Internet trading schemes include:

Hype and dump stocks
Pyramid schemes
Spam stock offers
Ponzi scams

The simplest and most effective way to avoid getting roped in by a scam is to always keep in mind the old saying: when something looks too good to be true, it probably is. Any promises that you will make instant profits, suffer no losses and encounter no risks when buying a particular stock are more than likely a lie. Research independent companies carefully and always double check offers that you think may be suspicious. Look for trading companies that have been approved by registered bodies such as the Securities and Exchange Commission (SEC).

In the event that you do fall prey to a free online trading scam or other type of unscrupulous trading scheme, your best option is to report the culprit to the Securities Exchange Commission. Their complaints division can be accessed online at http://www.sec.gov/complaint.shtml . They will investigate the company or individual in question and take the necessary steps to ensure that they are stopped.

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.