Q: I'm thinking of paying several thousand dollars to take a daytrading course. How do I check out the trading firm?
A: Let's deal with first things first. Why do you want to day trade?
Both academic and anecdotal evidence have shown that a vast majority of investors hurt themselves by daytrading, or flipping in and out of stock positions each day.
There are many studies that show it, but here's one written in 2000 by professors from the University of California, Davis.
This study found that investors who traded stocks most frequently between 1991 and 1996 earned an annual return of 11.4%. That sounds great until you learn that the average household earned a 16.4% return.
The best way to make money in stocks in the long run is by choosing a diversified basket of low-cost investments that track market indexes and hanging onto them.
Rather than spending thousands of dollars to learn to daytrade, give yourself a more valuable education, free, by reading speeches by Vanguard founder John Bogle here. By reading this material for free, you'll be thousands of dollars ahead before you start.
If you still want to investigate the daytrading firm, there are a few resources. Your first stop should be the website of the Securities and Exchange Commission at www.sec.gov. Click the Search link at the extreme upper right-hand corner of the page and under Search SEC Documents enter the firm's name as well as the names of the managers of the company. This will tell you if the company has had run-ins with the SEC.
Next, you'll want to look up the firm and the firm's executives in the SEC's Central Registration Depository, a database containing information about brokers and financial firms. You can also contract your state securities regulator to get information.
Finally, you should see if the security industry's regulatory body, Finra, has anything on the firm. You can look that up here.
But I wouldn't bother going to all this trouble. Day trading is a bad idea for the vast majority of investors, and you'd be much better served learning how to formulate a good long-term investment strategy.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at email@example.com. Click here to see previous Ask Matt columns.