How to Spot a Trading Scam: The First Rule of Investing Is to Avoid Scams

The First Rule of Investing is to Avoid Scams

In trading, there are some risk factors that everyone must acknowledge. The investment can fluctuate widely and can be affected by global events. Just like any other investment, it comes with a degree of risk. One way to reduce this risk is by properly researching the product. In fact, some fraudulent companies will publish fake press releases about their financial success to encourage investors to invest.

When you are researching a particular company, always ask for relevant information. Why? Well, it is because if you make a decision based on fake information, then it may result in large losses. Look for reputable and accurate information from the company itself or a reliable source. As a general rule, check with the company directly to verify that the information is true.

How to Avoid a Trading Scam

Do not fall for fake or phony stock offers. If you see any ad or email claiming that you can make profits in the stock market without investing a dime, do not fall for it. If you spot any email from a company that offers you money in exchange for an interest-free loan or “free premium securities”, do not respond. The chances are that the offer is just a clever rip-off scheme to separate you from your money. Do not use share trading websites that advertise misleading or useless information. Fake websites can only attract you with false promises and false information, and it is easy for the scammers to fool you with special offers or low prices.

Harsh penalties for trading scams. Trading scams are illegal and can even land you in jail.

Different Types of trading scams

As a new investor, there is a good chance you are looking to make an initial investment into a particular stock.

If you are unsure of which particular stock to choose, it is always best to go with a well-known stock that has the best reputation in the business and has successfully survived the test of time. The stock in question must also have a strong history of performance. It is at this point that many new investors are lured into making an initial investment into a company that is not as profitable as it has been hyped to be.

Even a small investment can go a long way. What is important is not how much you make but how much you keep. These are the people who cheat others out of their hard earned money.

When you get scammed

A common scam is selling shares or shares that don’t exist. Fraudsters usually present fake letters from brokers who supposedly buy these fictitious shares in their portfolios. But you don’t have to be particularly vigilant to get taken. An entire family of scammers can pull it off, and they won’t use your money for long.

Another common scam involves trading in penny stocks that promise astronomical gains. Most such stocks start with a high initial public offering (IPO), followed by a steep drop in the share price. It is not unusual to find that the stock price halved after the IPO. But look at the share prices that the scamster actually quotes.


Everyone wants to be a millionaire but few of us actually accomplish that. That’s why trading is so popular as it is easy to make money. Unlike other investments, you can always come back to the market. But if you are new to trading, it might be a good idea to talk to a professional. Better yet, have a trial and error period.

Remember that investors need to be careful at all times. People who have made a lot of money from trading may not be there for a reason. Always make sure that you are fully aware of the risks and rewards associated with trading. If you are planning to invest, please consider meeting with a financial adviser.

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