We've all seen the emails: they show up in our in box each day, promising us
fantastic returns on an unheard-of stock, if only we get in now on the ground
floor. Most of us are too clever to fall for such obvious solicitations, and
we delete them unread. However, the situation becomes less clear when we go hunting
on-line for investment opportunities or advice. The Internet can be a bewildering
place, full of apparently fool-proof opportunities for profit, "systems" which
guarantee a steady return above the market, or trading advisory services that
will make us "wealthy beyond our wildest dreams." It is often difficult to tell
who's who on-line, and to separate the legitimate investment opportunities and
companies from fraudulent ones. However, there are some common sense "rules of
thumb" that can help protect you from on-line fraud. Many of these rules apply
to all investment solicitations or offers, whether on-line
1. Identify who's making the offer
Knowing whom you are dealing with is an essential component in determining the
legitimacy of any offer or solicitation. Perpetrators of fraud will frequently
hide behind phony web-sites or "companies" in order to mask their intent. If
you know the solicitor's name, it is easier to determine if they have been investigated
in the past for fraud or criminal activity. Organizations such as the NFA, FINRA,
or the Better Business Bureau can help determine if you are dealing with potential
2. Be skeptical about past investment performance
In any given investment approach, past performance may not necessarily be indicative
of future success. What's more, hypothetical, computer-generated results may
present an unrealistic picture of a given strategy's likelihood of profitability.
Do your homework in investigating all claims, in addition to determining who's
3. Find out the registration status
Many brokers, investment advisors or trading strategy developers will be registered
with an industry-recognized regulatory entity such as the National Futures Association
(NFA) or the Financial Industry Regulating Authority (FINRA). These agencies
exist in order to protect investors. Not all individuals offering investment
opportunities are required to be registered with a regulatory organization. Again,
do your homework in determining who is required to register. We recommend that
traders use developers who are registered, especially for futures and stocks.
4. Be realistic in assessing risks and potential rewards.
As the saying goes, "if it sounds too good to be true, it is!" Be aware of the
risks involved in any investment opportunity. Where there is the potential for
profit, there may also be the potential for loss. Find out what risk management
components if any are involved in any investment strategy you are considering.
When trading riskier assets such as futures, commodities or Forex, trade using
risk capital only.
5. Be wary of giving out financial information over the phone
Identity and credit card theft are growing dangers for consumers around the world.
Guard your private financial information carefully, and only give out your credit
number when you are absolutely sure you are dealing with a legitimate vendor
with a secure means for credit card transaction.
6. Use the Internet to search
Web sites like Google and Yahoo can be useful tools for researching investment
opportunities. Search and
7. Above all, take your time.
- In particular, look for the company name. Is the web site frequently
updated? Phone them and find out.
- If they are a system developer, see if the system is actively traded
at other firms.
- Striker can prove useful in this regard, as we've been trading systems
for a number of years now. Feel free to call us for our opinion.
In general, aggressive system developers or system providers are to be avoided. Take your time researching;
you should never act hastily. Some web sites are very cleverly constructed and
good at attracting attention, but it is wise to remember that for a thousand
dollars a developer can make a web site appear to be a large, established business.
Keep this fact in mind