Spot trading scams before it’s too late

  • By Harrison Cole

  • June 16, 2018
  • 1:23 am BST

Cyber and investment fraud must pay off well – these two crime genres show no signs of abating, with the added worry that the increase in this kind of fraud is probably much worse than you might think, due to how under-reported it is. One thing scammers often succeed in doing is leaving their victims ashamed of having been so unwittingly fooled. What’s important to remember is that investment crime happens to everyone: young and old, sophisticated and naïve. Far from being something that ‘happened’ to someone, you could be next – unless you familiarise yourself with the key warning signs that something is off.

The promised returns are too good to be true

When you invest on the stock market, you expect that your stocks, ETFs and mutual funds will grow over time. That is the primary reason for investing after all. It is important to read stock charts to see how stock has performed before, and what kind of upward trajectory you could expect. However, that same chart will not show you a steady upward pattern. What you see is likely to resemble the heart rate of a stock as it fluctuates up and down.

Given this, any investment ‘professional’ who promises you unfailing growth on your returns, or that it will consistently outperform the stock market norms by a mile, is probably a scam artist, as no number of known trading strategies can guarantee this. Solid returns can never be guaranteed in the first place. Moreover, anyone who is SEC-registered should never be promising you gains or making profit percentage predictions.

Seek legal advice as soon as possible if you think you may already be a scam victim. You may have legal grounds for a claim against your ‘broker’ but acting swiftly is key.

The pitch is presented as industry-changing and urgent

An obvious question when a supposedly professional CFD broker comes to you with an innovative investment able to break expectation barriers is: why am I being singled out for this wonderful opportunity? Investments with new and creative distribution streams and setups, proprietary technologies or disruptive business models do exist, but are largely presented to institutional investors. As a lone, ‘chosen’ or ‘lucky’ investor, you will lose big if these do not work out. If someone approaches you along these lines, a red flag is raised.

Many people do not see the red flag as they become caught up in the euphoria of it all. Your broker may feed that, and also use it to emotionally blackmail you or simply pressure you into taking up the offer. A common approach is to let you know that the opportunity has a quick time lapse. You should always be able to review an investment decision as long and hard as you need to. Anything else – or worse, a prescription period – is a warning sign.

You and your friends are all targeted

Scam artists are opportunists who will kill as many investment birds with one stone as possible. You may even have been told you were specially selected for the opportunity, only to realise that your friends – such as those from the gym, church or book club – have all been targeted with the same thing. Be wary of someone infiltrating your group and spreading the same prosperity in exchange for signing on the dotted line.

Anyone can make a bad investment, and almost everyone does from time to time. However, a fraudulent investment is something else entirely, as often there was never an opportunity to begin with Knowing the difference and being cognisant of red flags will help you avoid dangerous pitfalls.