Trading Scam Types

What is a scam?

It is generally understood that there are two kinds of scams, fake stocks and fake online trading platforms. Fake stock trading is when a company representative talks you up and persuade you to trade in the stock that they sell. While it sounds like a legitimate business, the company usually only exists online. Since there is no physical location, it is easy for these online scammers to give an appearance of legitimacy. The reason you will never get an email or call from the actual company is that these types of companies are not legitimate. Once you invest, the scammers vanish with your cash.

On the other hand, the fake online trading platforms that people have come to know in the recent past are scams.

Why do people get scammed?

“I got scammed by somebody. I was trading cryptocurrency,” says Chuck Santilli. He is talking to me on Skype, while he is sitting at his kitchen table in Lower Macungie Township. Chuck says he has been a full-time trader for a year and has around $100,000 invested in the market. He is currently analyzing the purchase of a 10 million-dollar stock using Bitcoin. He says a man named “DJ” approached him online, offering to trade him large quantities of stock shares.

“When I called him, he said he was in Florida. He gave me a physical address. It was in a strip mall in Lehigh County. He told me he’d been hacked and he couldn’t disclose where he was right now,” he explains.

How do they operate?

Here are some of the most common trading scams you should be aware of:

Alimony Scam

This is perhaps one of the most prevalent and oldest scams in the stock market. The story goes that a partner in a business goes into bankruptcy because his ex-wife gets most of the assets. So, a brother or a friend of the ex-spouse steps in to prevent the bankruptcy and they sell the assets in the stock market. The fraudsters charge exorbitant commissions to the broker who liquidates the shares, pocketing all the money. The broker also sells it for a profit and gives a small commission to the unsuspecting investor.

Fraudulent Dividend Scam

A dividend fraudster exploits investor’s trust by buying low-priced stocks and then artificially increasing the share price in an attempt to get a generous dividend.

How can you prevent getting scammed?

Learn how to trade safely

Don’t stop at the first spam email

Avoid scams and fake emails. Most emails that promise un-sold stock options will never be sold or never exist at all

Use a trading platform that provides reliable, accurate information and insights

Don’t keep trading despite losing money. Taking losses is part of trading but never try to gamble your hard-earned money by selling your shares at low prices. You risk losing more than you invested.

Next, check out the next article in this series, How to Trade a Fake Stock Share.

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The most common scams

By far the most common trading scams are penny stocks and online scam companies. Online trading scammers do not always use big companies names, but make themselves appear legitimate by using the name of a well-known brand that has nothing to do with what they are selling. Sometimes the site is a stock brokers’ website, but in many cases, it is a fake website that is set up to look like a legitimate brokerage. The phony brokerage website will promise immediate profits but most likely will require a substantial investment before the trade can happen. Once you deposit your money, the scammer will steal it and disappear with your money.

When it comes to penny stocks, you should be aware of numerous tricks used by scammers. The fraudsters use stock tickers for both penny stocks and stocks.

Pump and Dump Scams

In this type of scam, individuals buy low and sell high, hoping that the price will go up after a few weeks of buying low and selling high. If the market rises, they make a tidy profit and if it does not, they sell their stock shares at a loss. Pump and dump scams are most commonly committed by professional scammers who are looking to make a quick buck.

Hedge Fund Scams

In this type of scam, investors expect to invest money in a hedge fund or stock portfolio that will yield a high return on investment. If the fund is established correctly, the returns will be proportional to the amount of investment. Unfortunately, instead of paying the investors back, the manager in charge of the hedge fund will use the money to pay themselves.

False News Scams

Many people are probably familiar with this scam but they might not have thought about it in such broad terms. Recently, The Marlboro Man, Matt Damon, mentioned how these people try to generate news and promote their business in this fraudulent manner. He called them the “Great Boyscouts of Wall Street”. The trader should be gullible enough to fall for this and that’s why the victim is taken for a ride. These scammers have the social media at their fingertips so they can make such stories that will lure in the victims. The individual will need to rely on friends and family members to protect their personal details.