10 Worst Trading Scams And How To Avoid Them

Unfortunately, there are a lot of scammers in the world – one in every ten adults in the US will fall for scams each year.

With more people trading and investing, the number of scams has risen – there has been a 13.3% increase in securities and investment fraud since 2015.

There are a range of ways these fraudsters approach you and ultimately take your money – below are some of the most popular scams we see in the industry.

Trading scam list

Boiler room scams

Boiler room scams involve a person, or a group of people, setting up a fake company. Some go as far as setting up a website landing page and even renting out temporary office space to make them seem more legitimate. They will then call potential investors and convince them to invest in either their own company or another private firm, usually by offering high returns and implementing a sense of urgency. Once they have successfully convinced the investors, they will take their deposit, shut down the website and disappear with no explanation, leaving victims with a significant loss.

Bucket Shops

Bucket shop scams are much more refined than boiler room scams and require the scammer to do a lot of preparation. However, this isn’t a problem for them as the potential profit they can gain from using this scam on people is much higher. Scammers will create a platform that will copy the performance of leading brokers’ programmes. Some will even copy a full website of a leading broker, convincing victims they are the real deal, taking their money and disappearing.

Pump and dump scheme

Pump and dump schemes don’t involve scammers directly stealing money from victims. Instead, fraudsters will first purchase a sizeable amount of any given investment – usually focusing on a small public company or cryptocurrency that has recently been launched and is lightly traded (as this could be portrayed as a promising investment.) Once they have done this, they will often pose as an analyst with insider information and market the investment to potential investors, promising big returns. They tend to also post on social media, sharing ‘hot tips’ about the company/investment.

When speaking to potential investors, the scammer will not share that they own a portion of the company – the information they share tends to be fabricated to gain more money from investors. Once the impostor has successfully gained money from victims, they will then sell or dump their large share at a higher price, leading to a huge decline in the investment price, leaving investors to pick up losses. Whilst this scam has been around for a while, it has evolved further due to social media.

Ponzi and Pyramid Schemes

Similarly to other scams, Ponzi and pyramid schemes often start with a con man marketing an investment opportunity and promising high returns for an upfront payment. Ponzi schemes differ slightly as the first few investors will see benefits, encouraging them to share the scheme with friends and family, often sharing on social media too. However, whilst seeing incoming money may be exciting, the investment isn’t actually making them money – they are simply being paid money that themselves and other victims have invested into the company, with fraudsters taking a share of the cut every time. Ponzi schemes tend to keep going as long as people are joining, but investors will eventually run out of money and disappear, leaving victims with nothing.

These schemes also come in the shape of a pyramid scheme. This is when investors are encouraged to ‘recruit’ others to get involved in the investment opportunity and earn money, with the promise being that those who recruit the most and are higher up the pyramid will earn more.

Fake Gurus

Fake guru schemes, also known as Investment seminar scams, involve self-proclaimed millionaires claiming they’ve discovered the secret to making money in the stock, crypto, or forex market. Many showcase their wealth in social media posts and advertisements by driving supercars, flying on private jets and living in giant mansions (although these are often rented.)

The ‘gurus’ claim their incredible knowledge in the chosen markets is the reason they live this luxurious lifestyle. They will then run a paid seminar, course, or textbook, sharing their knowledge and making victims feel like they will also achieve this lifestyle if they follow the advice, which is why they’re willing to pay the high price. There’s usually no secret and these courses or seminars are filled with motivational speeches or made up theories with no real substance. Some can be dangerous, with ‘gurus’ promoting high-risk options or not discussing potential risk factors, meaning their audience are at risk of gambling their money away without knowing the risk.

Despite these fake gurus, this does not mean that all courses on investing are scams. Many are honest about what they offer and will provide a great teaching course on trading that promises to do what it says, covering all aspects including risk factors and providing generally helpful and smart advice and tips.

Advance Fee Scheme

Advance Fee Schemes involve scammers pretending to be traders, stating that they will use the investor’s money to trade and earn them a profit. They often target those who have recently lost money on a specific investment and will promise a refund or recouping of this loss, as long as they pay a ‘processing fee’ or ‘tax’. However, they will often take this advance fee and disappear, leaving the victim with a loss

Signal Sellers

Signal seller scams involve a person or company selling information to victims on which trades they should make, claiming the information is based on professional forecasts and are guaranteed to make money. Often, these scammers take a daily, weekly or monthly fee, but don’t offer any advice to help people make money. A lot of the time, these ‘companies’ will share testimonials from ‘legitimate’ sources to gain the victim’s confidence.

Software Scams

Software scams involve ‘Forex robots’ or ‘Expert Advisors’ created by scammers – they are programs that claim to automate Forex trades. Many beginners fall victim to this scam as they are tempted by the promise of high profits with little effort and no knowledge required, as the software trades for them. Creators of the software tend to use fake or deceptive statistics which convince victims to buy the product. However, these promises cannot be kept as robots cannot adapt and develop in every market – the software sold is used to analyse past performance and identify trends, not identify wins.

Manipulation of bid/ask spreads

Although the popularity of scams that manipulate bid and ask spreads has decreased, they still exist. This scam involves having spreads between 7-8 pips, much higher than the normal 1-2 pips – this massively increases the risk for traders.

Unregulated Brokers

Whilst unregulated brokers are not necessarily a type of trading scam, due to them not being regulated they can run away with money and the victim has no way to defend themselves. It’s always best to use regulated brokers.

How to identify trading scams

It can seem like scammers are lurking around every corner, but by educating yourself, you can protect yourself. There are a few tell-tale signs that you’re being targeted for a scam as many fraudsters will do certain things differently from legitimate brokers. Here are some ways to identify scams.

Check their reputation

It’s easier to identify trading scams now than it used to be – a simple Google search can give somewhat of an idea as you can check brokers’ reviews (however reviews can be paid so be wary.) Comparison sites such as InvestinGoal can be used to see which trusted brokers are the best to go with. If a company has no reviews and there is no mention of them on industry websites, they are likely a boiler room scam.

Regulated vs. unregulated

It’s important to ensure you trade via a regulated broker and avoid unregulated ones – victims have no way to defend themselves if unregulated brokers disappear.

Don’t trust call centres

Law-abiding brokers cannot call you without receiving prior consent – if somebody calls you asking you to invest and you haven’t given them consent to call beforehand, it’s a scam.

Check regulations

It’s a good idea to check what regulations are in place for traders in your own country so you know what is deemed legal. If the potential scammers provide you with regulatory information, it’s a good idea to double-check this information on the regulator’s official website.

When checking the broker’s regulation, it is important to know that in some countries there are different categories of regulation depending on the type of broker.

In European countries, generally, every online broker falls under one regulation (such as the FCA for UK brokers), while in other countries such as the United States, forex brokers and brokers offering derivatives fall under the NFA/CFTC, while stock brokers operate under SEC rules.

Contact an industry professional/expert

If you’re unsure whether you are being scammed, check with somebody who is deemed as a reliable expert within the industry – they will be able to spot any odd signs and advise whether they think it is legitimate or not.

Steps to take if you’ve fallen victim to a scam

It’s surprisingly easy to fall for many of these scams, whether it’s due to the fraudster being very convincing with high return promises and sharing illegitimate company information, or simply not knowing what to look out for. To gain advice on what you should do if you find yourself falling victim to any scam we spoke to Ola Majekodunmi, founder of All Things Money – she advised:

1. Contact your bank straight away as they may be able to stop the transaction from going ahead, or try and recover the funds lost.
2. Make sure you report the incident to Action Fraud (the UK’s national reporting centre for fraud and cyber-crime) or your country’s equivalent.
3. Some banks may be able to reimburse your money; however, if this is not the case, then you may need to seek legal advice or contact the Financial Ombudsman Service who may be able to help you.
4. If you have given any personal details to potential scammers such as your passwords or bank details then make sure you change your passwords, and notify your bank of this.
5. If you feel like the incident has had an impact on your mental health reach out for emotional support. Charities such as Mind and Victim Support are great for this!
6. In addition to these tips, it’s important to keep any potential evidence you may have such as screenshots or incoming calls or their social media posts, and also be wary of other scams – a lot of the time, fraudsters will share the victim’s details to other scammers, many of which may target them with a new scam that will claim to get their money back (often in the form of an advance fee scam.) To avoid further scams, remember the above tips and tell-tale signs.