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Infomercials touting stock trading systems are ubiquitous on late night television. These infomercials generally showcase examples of people turning small sums of money into making $100,000 plus in a year. Sound too good to be true? It is, and don't be a victim by falling for these traps.

There is a lot of people out there touting stock advice and other investment schemes. Some of these are legitimate; some are not. This article will help you identify those "systems" out there that will just suck the money out of your pocket. Here are the top warning signs:

1. The "system" uses options trading. When you buy stock, you are buying a small share of a major company. If you buy a share of McDonalds, you become a very small owner of the worldwide giant. Stock options, on the other hand, are essentially bets on a stock's price. You do not own the stock; you buy an option to buy the stock. You make a bet with another trader about the price of the stock's movement. Unlike the stock market, the stock options market is zero-sum. Whatever you gain, the other guy loses and vice versa. People who succeed at stock options are generally insiders that work at the Chicago Board of Options Exchange. Betting against these guys is like betting Kobe Bryant that you can beat him at basketball.

2. The infomercial (or advertisement) showcases people who make a certain amount of money a day or a certain amount of money during one trade. The proper way of identifying good investors is what percentage they grew their income compared to the market. For example, an excellent investor will make a 15% return on his money in the market when the stock market only produced a 10% return on average during a year. When an infomercial talks about how someone makes a lot of money per day or per trade, they are banking that the viewer knows nothing about the stock market and can be fooled by such claims.

3. The "system" promises amazing returns. An amazing return in the stock market is 13% a year, compared to the long-term average of 10%. If an infomercial is going to lead you to believe that you can double your money in a year or less, run. It's a scam.

4. Most infomercial scams induce you to visit a free seminar, then expect you to pay an exorbitant amount (several thousand) to attend another seminar, then expect you pay an even greater amount for software or other advice. If it follows this pattern, run.

Source: Free Articles

The author writes for a stock investment tips website.