What Is A Trading Scam?
There are many types of trading scams out there but the most common and notorious is the pump and dump scam.
A pump and dump scam is perpetrated by someone who creates new companies. He wants to move the market for his own benefit so he sells his own shares of the stock and moves the price up to attract others to buy at a higher price. He then has the whole lot dumped on the unsuspecting public who are usually investors in mutual funds. Once the market goes down and the shares they sold at a high price is now worth less, he would swoop in and buy them at a lower price and resell them at a higher one to recoup their initial investment.
This process repeats itself as a cycle until investors lose all their money and securities become worthless.
How to Protect Yourself From Trading Scams
We offer some tips to help you avoid these type of trading scams:
Do your research before you buy a stock.
Be cautious of the company whose stock you want to purchase.
You should verify the numbers at the bottom of any product you buy.
Make sure the company you are purchasing stock from has a good reputation.
Trading in the stock market is meant to be a risky activity. There are many types of trading scams that take advantage of investors so it is important to be cautious of what you are doing and be smart when deciding which stocks to invest in.
Before investing in a particular stock, think about whether or not it is a good investment and if you should purchase that stock. Some people do not know their limits and can get into trouble.
The Role of the SEC in Protecting Investors
If you are trading in the stock market and you want to trade in a secure manner, you must read the fine print before you make any decision. You must do your research thoroughly and familiarize yourself with the basic SEC regulations before you execute any trades. Furthermore, if you are about to make any trades, you must ask yourself these questions:
Will I be able to continue to trade after the market closes? If not, who will I report the error to?
Is the person giving me the instructions someone that is well versed on the law?
Can I keep the profit and loss statement? If not, who will I send it to?
Can I call the SEC and report a violation if I find it?
For the answers to these questions and others, you must visit the SEC official website.
What To Do If You Are Scammed
The first thing to do if you are the victim of a trading scam is to stop and think about it. If you took the advice of the person selling the stock and had no idea it was a scam, then you probably deserve a refund. However, if you thought you had the necessary background to understand the stock and took the advice as truth, then it is more likely you will need to invest your money somewhere else. Either way, you want to act as quickly as possible to make sure the money is safe.
Paid For Scams
A paid for scam is exactly as it sounds. Someone will put in money to trade on your behalf without charging you any fees. If you discover this, you can ask to be repaid in full. If not, you should always report a scam to the appropriate authorities.
Conclusion and Next Steps
If you are a newbie to investing in stocks, it is okay to hold on to your first stock investment for as long as you wish. But if you want to increase your trading, use these guidelines to increase your risk tolerance:
• Study the industry and companies in detail, as well as look up financial reports and forums online to become familiar with the players.
• Use limit orders to minimise the risk of being wrong. It is better to enter a trade when you know how much you want to invest than to allow your orders to run out.
• Invest in a low-risk, well-diversified mutual fund. You can invest in different types of mutual funds for a safer trade.
• Use stop-loss orders and time limits to reduce the risk of trading without following through.