Common types of trading scams
- The signal seller scam
The most common type of scam in online trading. A signal seller will offer a system that allegedly signals favorable trades with guaranteed profits for a fee. After a trader has paid the fees, these fake signal sellers usually disappear with the money, or they might offer false signals that only profit the broker.
The good news is that legitimate signal providers do exist. They will not promise guaranteed returns and might have independently audited records that are easy to find with some research.
- The pump & dump scam
This happens when scammers spread false news to boost the value of certain assets (pump), resulting in huge buys and an inevitable increase in their value. When this happens, scammers will sell their assets (dump) and rake in the profits while traders are left to deal with the crash.
- Other scams
Other online trading scams are brought about by high yield investment programs, false bots for traders, and other schemes that promise traders high returns.
Identifying legitimate brokers
- They are generally regulated
Always make sure that the trading platform and broker is regulated. There are various regulatory bodies that monitor online trading brokers to protect traders. Unregulated brokers do not have to comply with any rules, which means you risk being unprotected from any possible misconduct by the broker.
- They verify your identity
All regulated trading brokers make it compulsory for traders to verify their personal information before trading. This is required to comply with the laws and regulations set out by the regulatory bodies. Traders typically undergo a strict verification process to authenticate their identity — this is known as a KYC (know your customer) procedure, and it varies from country to country.
To ensure this isn’t another scam to collect your personal information, find out everything you can about a broker to determine its legitimacy and to know who exactly is collecting your information.
- They have a proven track record
Make sure you do your research on a broker’s reputation. Check reviews, look at what other traders are talking about in trading forums and find out everything you can about a broker before trading.
- They are not “too good to be true”
If a platform’s or broker’s promises of high returns or consistent profits seem too good to be true, they usually are. Trust your instincts, and don’t fall for flashy advertisements. Legitimate trading platforms never promise high profits. Remember — in trading, nothing is guaranteed.
- They have reliable customer support
Genuine trading platforms and brokers will always be ready to answer your questions and help resolve any issues you may have. Plus, they will provide proper and practical ways for you to contact them.