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Trading Scams

Written By

James Barra

Written By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

» James Barra Profile Page

Edited By

Jemma Grist

Edited By

Jemma Grist

Jemma is a writer, editor and fact-checker focused on retail trading and investing. Jemma brings a unique perspective to the forex, stock, and cryptocurrency markets and works across several investment websites as a researcher and broker analyst.

» Jemma Grist Profile Page

Fact Checked By

Tobias Robinson

Fact Checked By

Tobias Robinson

Tobias is a partner at DayTrading.com, director of a UK limited company and active trader. He has over 25 years of experience in the financial industry and contributed via CySec to the regulatory response to digital options and CFD trading in Europe. Toby’s expertise and dedication to financial education make him a trusted voice in the industry, including a BBC investigation into digital options.

» Tobias Robinson Profile Page

Updated

Nov 22, 2024

Trading scams are rife online and catch out unsuspecting investors every day. Active who do not take adequate measures can fall victim to fraudulent brokers and other unscrupulous platforms or criminal individuals.

However, careful and sensible traders should not have trouble protecting themselves while they trade online.

This guide will help beginners traders stay safe by explaining how common trading scams work, giving tips on how to spot a scammer, and detailing what steps can be taken if you do fall victim to an online trading scam.

Trading Scams Explained

A trading scam refers to fraudulent activity that takes place in the financial markets and targets traders.

Trading scams may be promoted online and increasingly on social media, luring unsuspecting traders with promises of quick and easy cash, or they could specifically target individuals through phishing or other types of schemes.

In some cases, registered trading brokers and other companies look to profit from unscrupulous activities that amount to scams.

In others, criminals pose as legitimate online brokers or trading providers to steal cash. The Quantum AI scam, for example, used fake videos of Elon Musk to promote risky crypto bots.

Trading scams are known to be particularly prevalent in certain markets which have less regulatory oversight or attract beginner traders. Thus, traders should be particularly careful when trading binary options, a sector in which regulators have reported a lot of fraudulent activity, as well as cryptocurrencies, which are still to a great degree unregulated.

The forex market can also be risky due to the lack of centralized oversight, the high leverage offered, and the large number of beginner traders it attracts.

How Trading Scams Work

Scammers employ a variety of methods to defraud traders of their funds, but many of the most common systems involve misleading naive or unknowledgeable traders to invest in their schemes or hand over personal information.

To help you avoid the latest trading scams in 2024, here are the most common underhand tactics and dodgy schemes:

Bucket Shop Brokers

A “bucket shop” is a term used for brokerages that engage in fraudulent or otherwise unscrupulous practices.

Traditionally, bucket shops were brokers who encouraged clients to gamble on financial markets with high leverage, but nowadays the term is most commonly used to describe brokers that dishonestly profit from clients’ transactions.

A bucket shop might simply do this by charging a much higher price for an asset than market value. Many brokers profit from a price spread, but a bucket shop’s spread would be so exaggerated as to verge on fraudulent.

Traders can check brokers’ terms and conditions and reviews online to ensure their pricing schedule is transparent and competitive.

Withdrawal Scams

A trader may sink a large amount of cash into a trading brokerage account and make a profit on their initial capital before they realize the broker they have signed up to is preventing them from withdrawing their earnings.

A withdrawal scam is exactly that – a form of fraudulent activity in which the online broker pockets a trader’s deposit, and does not allow them to make withdrawals from their account.

Traders should always research brokers carefully before signing up, but if they are planning to invest a large amount in a brokerage account, they may wish to sign up with a smaller amount first to trade for a while and ensure withdrawals take place conveniently and with no issues.

Signal Sellers

Signal sellers often top the list of the worst trading scams.

These are essentially businesses that sell information to traders, often beginners, that is supposed to help them make more successful trades. This information tends to include suggestions on the right time to make trades, and the investor is usually charged for the service.

However, some seemingly legitimate signal programmes are in fact set up by scammers who charge people money without providing any information worth having.

Another common signalling scam involves a supposedly free signalling service that requires users to sign up with a particular broker. These brokers may offer terms that are relatively unfavorable to traders, even if they are not running outright scams.

If you do want to trade using signals, make sure you sign up with signal providers that come recommended.

Software Scams & Trading Robot Schemes

Robot scammers are one of the biggest threats. They target new traders, promising them huge returns without needing in-depth knowledge about trading.

Like other trading scams, the scammer will make claims that the robot can win nearly every trade and make a huge amount of money, but the reality is that no robot can guarantee this.

If you are going to pay for autotrader services, it is important that it is from a trusted and reputable source.

Price And Contract Manipulations

In some cases, scam brokers will note in their terms of service that they set their own market prices. In others, fraudulent brokers have been found to manipulate both prices and contracts secretly.

This is particularly dangerous for binary options traders, since they rely on all-or-nothing bets, often on short-term price movements. If a broker takes the opposite position in the bet, and is able to manipulate the asset’s price or the contract length, it can ensure that it profits from the trader.

Identity Theft

When you sign up with a broker, you usually need to provide detailed personal information before you can verify your account and begin trading.

This should not be an issue for reputable brokerage firms, but in the wrong hands, this information can be used to commit identity theft or for other dishonest purposes.

To avoid this danger, sign up with regulated brokers overseen by a top-tier financial agency.

Account Managers And Churning

Some brokers and other financial firms offer traders the services of an account manager, marketing these as veteran traders who can give retail investors the benefit of their experience in exchange for a fee. In some cases, this may work, but many times it is not advisable to put your account in someone else’s hands.

Even an honest account manager cannot guarantee they will turn a profit for a customer, and bear in mind that it is likely your account is just one of many that will be assigned to them.

Moreover, if the account manager is directly employed by a broker that makes commissions from your trades, they may engage in churning – the practice of making an excessive number of trades to rack up commission fees.

Pyramid Schemes

Trading pyramid schemes offer traders the opportunity to earn money by moving upwards through an earning programme while paying a subscription fee. As you bring in referrals to the scheme, you move up the pyramid and earn more.

This brings in traders with promises of enhanced profit opportunities when, in reality, the ones who started the scheme take all of the earnings for themselves. We do not recommend ever taking part in a trading pyramid scheme.

Phishing Scams

Phishing trading scams are widespread across many sectors and retail investing is no different.

These trading scams are run by criminals who send out emails fraudulently posing as an acquaintance, company, government official or other, in order to directly swindle money or otherwise try to obtain sensitive personal details.

A typical phishing scam in the retail trading sphere may involve a fraudulent email informing a user their trading account has been hacked in order to obtain their password.

Scammers may also try to persuade traders to deposit funds to a fake account or pose as a broker employee and request personal information to complete a withdrawal.

Traders can protect themselves from phishing trading scams by checking previous communication they have received from their broker and never giving out any personal information except on secure channels.

Remember that banks and most honest brokers will never ask you to give sensitive information in an email or over the phone.

High-Yield Investment Schemes

High-yield investment schemes promise traders high returns for a small investment. However, anything you put into them is being paid as a ‘return’ to older investors, and therefore those creating these schemes need to bring in new investors to pay the other ones.

As soon as there are no new investors to pay the older ones, the scheme will collapse, leaving the latest investors holding the bag while fraudsters make off with their money.

PAMM Scams

PAMM stands for Percentage Allocation Management Modules, and when they are used legitimately they provide traders with a great way of having a part in a managed fund.

However, they are also a common form of trading scam whereby the manager of the fund will disappear and take the money with them.

There is nothing wrong with taking part in a PAMM Account, but ensure that it is with a qualified fund manager and a reputable source.

Social Media Trading Scams

An increasingly common method for scammers nowadays involves approaching traders directly or advertising their fraudulent companies on social media sites.

Some of the most reported scams circulating on social media in 2024 include:

• Bitcoin, forex and binary options trader scams on Instagram
• Forex trading scams on WhatsApp, Reddit, LinkedIn, and Telegram
• Bitcoin, forex and binary options trading scams on Facebook
• Tinder trading scams

Note, auto trader social media scams often ask for payment with PayPal.

Scam Brokers

Our experts have compiled a blacklist of some of the key trading scams and untrustworthy providers to avoid:

• Quantum AI trading scam
• 365BinaryConsultantScam
• SignalsBinary.com
• ActionBinary.com
• Legal Insider Bot
• Safe24option
• BinaryOptionsMillionaire.com
• XMTrade.in

How To Avoid Trading Scams

Ensure The Broker Is Regulated

The Financial Conduct Authority is the most reliable financial regulator, helping to ensure your funds are relatively secure if your chosen broker holds a license with them.

Brokers applying for FCA oversight must comply with honesty and transparency guidelines and are also covered by the Financial Ombudsman Service and the Financial Services Compensation Scheme.

This means that if your funds go missing during bankruptcy, for example, you will be financially compensated for the loss.

However, fraudulent brokers may falsely claim that they are FCA-regulated to make traders trust them. You can only ensure that the broker you are considering trading with is actually FCA-regulated by checking the FCA register, so avoid trading with brokers that are not listed there.

You can also look at the FCA warning list which flags up risks associated with various firms.

Other top-rated regulators that oversee the activities of trading brokers include the Cyprus Securities & Exchange Commission (CySEC), the Australian Securities & Investments Commission (ASIC), and the US Commodity Futures Trading Commission (CFTC).

Be Wary Of False Advertising

Internet trading scams become easier to spot when you know what to look for. The way a broker is advertising their service can be a good indication of whether they are legitimate or not.

Adverts that promise huge payouts or a 95% win rate are simply unrealistic, and should generally be ignored. Likewise, any wording that suggests profits are guaranteed.

Brokers who contact you directly should also be avoided – trustworthy brokers do not cold call potential customers, if you do receive such a call you should report it immediately. The old adage rings just as true today – if it sounds too good to be true, then it probably is.

Do Your Research

Don’t take what a broker says at face value, and instead do your own research to ensure everything is above board before you invest any of your own money.

When popular trading markets such as forex were just starting out and becoming widely available to retail traders, it was difficult to find out whether a broker was legitimate or not, but there is now ample information available to help you tell whether you should trade with a broker or not.

There are also websites like ours, whose experts test firms and recommend the most trustworthy brokers to save traders the background digging.

Learn How To Trade

One of the best things that you can do to avoid being a part of a trading scam is to take the time to learn how to trade strategically and in an educated manner.

When you have a strategy that is going to work on its own to make a profit from online trading, you won’t need to buy into false claims and promises from scammers, and instead can find a regulated broker that is well-reviewed and trusted by other users.

What To Do If You Are Scammed

You can report trading scams to your local regulator directly. They will be able to give you guidance on how to proceed.

You can also report a trading or investment opportunity that you suspect might be a scam, such as if you have been contacted by a broker that is encouraging you to invest money with them.

Importantly, if you have already been scammed, it makes you a target for future scams. The same scammer may try to contact you again under a different guise, or they may sell your details to other scammers.

To prevent the same scam from affecting other traders, you can also share your story on forums so that traders know which investment opportunities to avoid.

Bottom Line

Retail trading is becoming increasingly popular, and while it can be a great source of income, it comes with risk. With any kind of trading, there is already a risk that you will lose money through losing investments, so you should do everything in your power to negate the risk of losing money through trading scams as well.

Before placing money into any kind of trading account, do your research and never trade with a company that fails to prove its legitimacy.

Use this guide on how to avoid forex, stock and crypto trading scams to invest securely. And head to our list of the most trustworthy brokers to sign up with a legitimate trading platform.

FAQs

What Is A Trading Scam?

Trading scams are dishonest schemes cooked up by criminals to steal money from traders. This can come in many forms, from brokers falsely advertising their services, to social media advertisements, to phishing scams.

What Are The Most Common Trading Scams?

It is wise to keep an eye out on trading forums or news sites for updates on scams, as the most common scams often come in waves or cycles. The best rule to follow is that if an opportunity seems too good to be true, then it probably is. Additionally, avoid any company that asks you to give personal information over the phone or by email.

How Can I Avoid Trading Scams?

An excellent way to avoid trading scams is to ensure that the broker you trade with is licensed by the FCA or another good regulator. However, do not take it at face value if a broker claims they are regulated – check the regulator’s official register and see for yourself.

How Do Trading Scams Work?

Some scammers try to lure traders into investing in fraudulent schemes by promising large gains in exchange for a small investment. Scammers will often have a legitimate and professional-looking website and claim to be licensed and regulated as well. However, once you invest in a fraudulent scheme, the scammers will disappear with the money.

What Do I Do If I Am Scammed Trading Online?

If you are scammed by a fake broker, you can report it to your local regulator via phone, and also share your experience online so that other traders don’t become victims of the same scams. Note, some regulators also have contact forms and templates on their website to report trading scams.

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