Trading Scams Explained

The Scams

Prepaid Stock

Prepaid stock allows investors to trade stocks with minimal transaction fees. When you buy the stock, the broker will either sell or purchase the shares for a certain price. That way, the total trading fee that you pay will be the same no matter how many stocks you trade. The problem is, a prepaid stock is practically worthless once it is sold to a third party. Because the person selling the stock will have no value, they will sometimes try to sell them at a higher price to people who have never owned shares in the first place.

This scam is extremely popular with the elderly and has killed many investors. According to a 2011 study, more than two million elderly people are victims of scams like this one.

The Details

When you are first starting out as an investor, you are vulnerable to frauds and scams. They might include large scale trading frauds, such as the one that I encountered, as well as ones that are more discrete, such as people who will sell shares on behalf of someone else. The general guidelines for trading are summarized below.

Research the company: Research the company’s history and financials and ask for proof of previous trading history. If the stock is traded over the counter (OTC), you are unlikely to get an audit report. If you are trading on an over-the-counter exchange, you have the right to request one at anytime. The companies that go public tend to be more reliable than those who have been private.

How to Avoid These Scams

If you want to stay out of trouble in the stock market, you should never pay money in advance for stock shares or exchange traded funds. The government has run successful campaigns against this scam and people are educated about it. Trading commissions are generally offered to traders. However, you can opt out of paying them by negotiating your own transaction fee. When using trading systems like AltaVista and Investar Investing, the trading fees are usually low compared to the commissions charged by other systems.

Never sign an agreement to buy stock before you have checked the background of the company and its officers. Before you buy, make sure the stocks are listed and have an established history of trading.

Never share personal or financial information with unsolicited sellers.

What You Should Know

Before you start investing in shares, it is vital that you have a clear understanding of how the stock market works. A lot of people who invest in the stock market are new to it and they do not realize the risks they are taking. When you are in the market, it is crucial that you know the basics.

Know Your Investment Type

It is very important that you do not invest in penny stocks and that you do not bet on the market. The stock market is all about long-term investing. If you think that you can make money in a day or a week, then you are not qualified to trade. Many traders leave their capital at the stock market, but they end up losing their entire investment because they did not invest long-term.

Common Trading Tips

Be aware of fake trading tips. You should look for trading advice on reliable websites or even reputable organizations such as the Better Business Bureau (BBB). Some scammers promise sky high returns on investments but it is all an illusion. It is always better to go with a company that has a history of trustworthy trading. You can also check the regulatory body for that particular country where your stock is listed. If you suspect a scammer, report them to the authorities.

Conduct your own research. You should not just blindly follow a trading tip that you found on social media or an Internet blog. If a scammer is going to guarantee high returns in just a few days, you can bet your dollar that the scam is actually about to happen.

Be sure you read the fine print.

Where to Start Trading

Start by reading books and investing in market guides. This will help you learn how the stock market works and develop the confidence you need to make big profits. The investing system which I believe will help you the most is the investment system of Alfred Nobel which can be found here: Alfred Nobel’s Economics for the 21st Century.

But don’t worry. Even if you are no good at trading, you can still make money by purchasing investments that have big upside. Remember, in order to earn a profit, you have to be willing to take risks.