When you’re first starting out in trading there’s a great deal to do just to find your feet, never mind protecting yourself from scams as well. Unfortunately, scammers recognize this vulnerability and new traders are often a favourit target. It’s important to know what to look out for, to be able to identify common types of scam and to be alert to warning signs. This guide is here to help.
Stock and share scams
Because stocks and shares still account for the bulk of money traded, it’s in this area that most scams are centered. Among the most common are pre-IPO offers, in which a seller offers stock in a company which has yet to go public. Even if this offer is legitimate – which it is usually not – if the transaction isn’t filed with the SEC, you risk losing your money and gaining nothing. Then there are pump and dump schemes, in which sellers talk up a particular stock well beyond its real worth, creating a false sense of its value. Once the price has risen due to a lot of people buying, they sell their own shares at that inflated price and disappear – and the price collapses again, leaving you with a loss.
The other big scam in this area is the pyramid scheme (one type of which is more famous as a Ponzi scheme), in which you’re sold stock that you’re assured is great value and, because you start to receive good dividends, you invest in more. The problem is that those dividends aren’t real – they’re financed from the money paid in by the next set of buyers, with the scammer creaming a nice profit off the top. Once people stop buying into the scheme, what you’ve bought is worthless. What’s more, if you’ve helped to promote the scheme, you could be in breach of the law.
Forex scams
Forex trading is an area that’s prone to scams in large part because trades take place quickly, so it’s easy for swindlers to make their money and then move on. There’s a particular problem with fake brokers and clone firms which sometimes use the details of real firms on their websites and even claim to be regulated by the FCA (remember that you can check with the FCA if you have any suspicions). they’re sometimes referred to as boiler room scams because they often have no physical office or operate out of just one room. persuading people to give them their money and then giving nothing in return. This best fxpro review by ForexFraud.com is an example of the kind of article you should be looking for when you research companies you’re unsure about.
The other big issue in forex is with signal sellers, who operate by charging for pointers to forex pairs they say will make you lots of money. Some also offer systems that can supposedly beat the market. In reality, the tips are frequently worthless and there’s nothing you can do to get your money back. People have been trying to beat the market for decades and nobody has yet succeeded, so you should be deeply suspicious of anyone who claims to have cracked what top mathematicians and trading company CEOs could not.
Education fraud
Just as some people sell phony information, other sell phony training. When you’re new to trading and talking about it online you’re likely to find yourself deluged with offers of courses that can polish your skills and make you a success. The thing is, you can take courses like this for free through online university programs or through your broker. Even if you’re offered big discounts by scammers, you’re still likely to be charged hundreds of pounds for a course that will teach you nothing special. Don’t waste your money.
Red flags
How can you tell who you should and shouldn’t trust? There are some things that should always make you wary:
- If they make the initial approach
- If it sounds too good to be true
- If they give you the hard sell
- If they don’t have proper documentation
- If you can’t find independent information about them
Who you can turn to?
What should you do if you believe you’ve been scammed? Sadly, it’s often impossible to recover your money, but you can help to make other people safer and increase the chances of the scammer eventually getting caught. It’s always a good idea to contact the police but they don’t always have the expertise to assist. Report the scammer to the FCA, who are better placed to take action, and post the details of what happened to you to the relevant threads on trading forums, where you can compare your experience with others.
Scammers are a problem in trading but by working together we can make it difficult for them to get away with it.
