STATE WARNS ONLINE INVESTORS TO LOOK BEYOND PROMISES OF ADS ONLINE BUYS NOT FOR NEOPHYTES.Byline: Chris Sieroty Staff Writer With online brokerage firms poised to spend a record $1 billion on advertising this year, state regulators are cautioning investors to look beyond the claims of how easy it is to get rich investing online Investing online has become the norm for investors and traders over the past decade with many, if not all brokers now offering online services with unique trading platforms. In the past, investors had to call up their brokers and place an order on the phone. and beware be·ware v. be·wared, be·war·ing, be·wares v.tr. To be on guard against; be cautious of: "Beware the ides of March" Shakespeare. v. of risks that are magnified by the new technologies. To help investors make their way through the sea of advertising claims, the state Department of Corporations recently published a list on its Web site, www.corp.ca.gov, of five risks to trading online. It also has begun an education campaign for new investors. The department said a number of advertisements imply incorrectly that anyone who isn't trading online is hopelessly hope·less adj. 1. Having no hope; despairing. See Synonyms at despondent. 2. Offering no hope; bleak. 3. Incurable. 4. Having no possibility of solution; impossible. old-fashioned and behind the times. They also ``create the impression that making money on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the is as easy as clicking a mouse,'' said Julie Stewart Julie A. Stewart is a Canadian actress. Julie Stewart studied acting in Montreal at the National Theatre School of Canada and now makes her home in Toronto. She was the star of the Canadian television series Cold Squad. , the department's assistant commissioner for public affairs Those public information, command information, and community relations activities directed toward both the external and internal publics with interest in the Department of Defense. Also called PA. See also command information; community relations; public information. . Stewart said with the current hot stock market and competition for clients, some ads from online brokerage firms clearly imply that online investors will become rich enough to own islands and bail out small countries. Securities and Exchange Commission Chairman Arthur Levitt agreed, saying, ``Advertising by online brokerage firms has been responsible for more and more people entering the markets with overly aggressive expectations.'' In a speech in November to an investors' town meeting in Albuquerque, N.M., Levitt said, ``With some of the online brokerage commercials that are showing up on TV these days - visions of owning your own island or amassing a small fortune overnight - it's easy to see how people can get caught up in the excitement.'' The state agency isn't trying to scare people away from investing online, said Stewart, but ``people need to know what they're getting into.'' Michael Dunn Michael Dunn (born Gary Neil Miller, reportedly on February 7, 1934 in Shattuck, Oklahoma; died August 30, 1973 in London) was a successful "little person" American actor. , a spokesman with New York-based Datek Online, wouldn't comment on other online firms or their advertisements. Dunn would only say that at Datek, '``Our advertising is designed to communicate to the individual investor that they have access to the same information as the professionals do.'' Numerous messages left last week by the Daily News seeking comment from other online brokerages about their advertisements - including DLJDirect.com, Web StreetSecurities.com and E-trade e-trade To buy or sell a security via computer. Brokerage firms route computer-generated customer orders to appropriate dealers and exchange specialists. - were not returned. Stewart said firms may use advertising to tell customers they have the same access to information as the professionals, but the risks of online trading Online Trading Making trades via the Internet. Notes: The use of online trading increased dramatically in the mid to late 1990's with the advent of high-speed computers and Internet connections. Stocks, bonds, options, futures, and currencies can all be traded online. usually aren't mentioned. She said the state of California is trying to make investors aware of some of the risks that are amplified by the online format, including hidden costs, trading too much, technological limitations, and the fact that investing independently isn't for everyone. Stewart urged investors who are entering the markets for the first time using online brokerage firms to do the same prudent stock research they would do before investing with a full-service broker Full-Service Broker A broker that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. Of course, this all comes at a price, as commissions at full-service brokerages are much higher than those at discount . Dunn of Datek agreed, saying, ``We believe that education is the most important thing an investor can do before they click that mouse to make a trade. Do the research and make an informed decision.'' Also, although the Internet makes it seem as if investors have a direct connection to the securities market, they don't. When an investor pushes the enter key on her keyboard, the order is sent to a broker, who sends it to a market to be executed. ``Today, investors have access to timely information that was virtually unthinkable just a few years ago,'' said Levitt. ``But, I'm surprised when I ask investors who, when, and what they consult before buying a stock. I've found that very few people read the company's annual report or mutual fund prospectus or do independent research. ``It's a fundamental fact of investing. With any investment, you stand a chance of losing your money.'' SAFE SURFING surfing, sport of gliding toward the shore on a breaking wave. Surfers originally used long, cumbersome wooden boards but now ride lightweight synthetic boards that allow a greater degree of maneuverability. Although trading online might result in lower commissions and could give greater access to financial information, the state Department of Corporations noted some of the risks to trading online: --HIDDEN COSTS: Behind-the-scenes but legal payments between online brokers and market makers, so-called ``payment for order flow,'' might reduce the incentive to get the investor the best price when buying or selling a stock. --TRADING DELAYS: Most online ads suggest that investors have instant access to the market and are directly linked to order desks. Contrary to such claims, investors are not connected ``directly to the markets.'' Online trading simply gives investors the opportunity to place a trade in a firm's trading system The introduction to this article provides insufficient context for those unfamiliar with the subject matter. Please help [ improve the introduction] to meet Wikipedia's layout standards. You can discuss the issue on the talk page. . Moreover, delays in order execution can result in worse prices than what investors are seeing on their computer screen at the time they place the order. Investors can protect themselves by using ``limit orders'' instead of ``market orders'' that allow investors to specify the price or price range at which they are willing to buy or sell securities. --TRADING TOO MUCH: The message implied by many online ads is that in a hot stock market the more trading an investor does, the better he or she will do. Experience, however, suggests that the more trading an investor does, the less well they do. Experience also suggests that real wealth in investing comes from careful research and patience in buying the securities of quality companies and holding them for the long term. --LIMITATIONS OF TECHNOLOGY: There is nothing inherently wrong with online trading, but it is merely an alternative form of trade placement and execution that is dependent on technologies that are constantly changing. Online investors should make sure that their online brokerage firm has the technological capacity to meet the fast-paced needs of online investing. They should also keep records of orders and confirmations in case there is a dispute about the orders placed online. --GOING IT ALONE IS NOT FOR EVERYONE: Online accounts with discount brokers are less expensive, but the customer does not have access to the research, due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. , recommendations, support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services and fiduciary relationship fiduciary relationship n. where one person places complete confidence in another in regard to a particular transaction or one's general affairs or business. The relationship is not necessarily formally or legally established as in a declaration of trust, but can be of an account with a full-service broker. The bottom line is that investors must decide whether they have the time, the temperament temperament, in music, the altering of certain intervals from their acoustically correct values to provide a system of tuning whereby music can move from key to key without unacceptably impure sonorities. and the interest to actively manage their own money alone. Otherwise, a traditional relationship with a broker or investment adviser might be a better way to go. CAPTION(S): photo, box Photo: (color illustration) Putting your money where your mouse is Box: SAFE SURFING (see text) |
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