Many people see trading and investing as their vehicle to financial freedom. In fact, over half of UK adults have invested their money into something as of 2024. Unfortunately, if you’re part of that statistic, you’re also part of the pool of people who are likely to be targeted by trading and investment scams – the most common type of scam in the UK. What makes it even harder is the fact that scams are always changing and adapting to keep up with the times. If you’re currently trading, or looking to get into the world of trading, these 7 essential tips will help you to avoid falling victim to trading scams.
Do Your Own Research (DYOR)
In the world of trading, believe no one. It’s vital you take anything you see or hear with a pinch of salt and instead, do your own research. This applies to brokers, platforms and everything in between.
When we say to do your own research (often abbreviated to DYOR), this doesn’t mean searching up a dodgy-looking broker on social media. It’s probable they’ll be one step ahead and have that covered. The majority of fake or scammy brokers will have a strong social media game in an attempt to appear legit.
Any law-abiding broker would also be willing to hand over referrals, but you should research these too as they could be fake testimonials designed to again seemingly enhance their reputation.
Instead, look on public forums, join groups and ask questions on platforms like Reddit for a more accurate review.
Be Sceptical
When it comes to trading, follow the age-old saying, “If something sounds too good to be true, it probably is.” Remember this especially if someone promises you extremely high returns through trades, this is usually a clear sign of a pyramid scheme.
Pyramid schemes operate by using new recruits to pay pre-existing members. This leaves the people at the bottom of the pyramid, which is the vast majority of members, out of pocket and ultimately, victims.
This type of scheme dates all the way back to 1920 when Italian migrant Charles Ponzi scammed US investors out of an estimated $15 million. Hence why these types of scams are often referred to as Ponzi schemes.
While they take on a different disguise these days, they certainly still exist. Pyramid and Ponzi schemes often come in the form of multilevel marketing schemes (MLMs) and are also used in conjunction with unrealistic returns from cryptocurrency investments.
Be Aware Of Ever Evolving Phishing Scams
According to the UK’s National Cyber Security Centre, a phishing scam occurs when criminals use scam emails, text messages or phone calls to trick their victims. The end goal is to direct the potential victim to a fraudulent website or trick them into handing over personal information.
Phishing scams started to pop up in the 90s and thankfully, users are far more clued up on how to spot a fraudulent email or text message these days. The trouble is scammers are constantly disguising their latest phishing attempts.
When it comes to trading, common phishing tactics will include emails sent out of the blue and posing as a relative via WhatsApp message.
The best way to avoid phishing scams is to only deal with parties that you have contacted first, communicate via phone calls and never hand over personal details or funds to someone who contacts you out of the blue.
Invest Only Through Regulated Institutions
Following on from the previous tip, regulated institutions will never contact you first. These are the only institutions you should be looking to trade with. While not all unregulated brokers are out to trick you, avoiding them means you’ve at least taken one step to protecting yourself.
There are a few telltale signs of an unregulated, fraudulent broker. These include:
- Promising unrealistic returns
- Pressuring you to invest
- Low-quality website
- Located offshore
- Lack of reviews
As already mentioned, take everything with a pinch of salt when it comes to trading. Some unregulated brokers may unashamedly lie to you about their status, background and credentials. Fortunately, if you’re unsure, you can check the status of a broker or organisation using FINRA’s BrokerCheck tool.
Scammers Are Turning To Crypto
As regulations get tighter and traders get wiser, the game for scammers gets harder. That’s why many illegal trading operations now go down in the emerging, loosely regulated world of crypto. Often referred to as the Wild West due to the amount of illicit activity, crypto has become somewhat of a heaven for fraudsters.
The untraceable nature of crypto and blockchain technology makes it a tough test to regulate. In consequence, fraudulent activity and scams are rife. Not only this, it can often be harder to retrieve lost or stolen funds as criminals are much harder to trace in the crypto world.
If you’re looking to trade in crypto, it’s highly recommended you only use FCA-approved exchanges. Another tip would be to only consider using non-custodial wallets to store your crypto assets once you have thoroughly educated yourself about the dangers and complexities associated with the self-custody of crypto assets.
Watch Out For The Lost Money Scam
Many people’s first reaction after being scammed is to try and recover their lost or stolen funds. What victims don’t realise is that this is when they are most vulnerable to trading scams.
One of the most common types of trading scams is ‘The Lost Money Scam’. This is a type of scam designed specifically to target people who have fallen victim to scams already. In an attempt to get their money back, victims are often prepared to hand over whatever it takes once it appears they’ve found someone who can help.
Often, these people aren’t there to help and are simply preying on the vulnerable. If you have fallen victim to a trading scam, follow many of the other tips in this article when it comes to selecting a wealth recovery company. Research any organisations thoroughly and make sure you contact them first, not vice versa.
Sharing Is Caring
The final tip is if you do come across a trading scam, share it! Passing on the latest phishing attempt or whatever it may be to your friends and family, or posting about it on social media could be the difference between someone else falling victim to a scam and staying safe.
If you think someone has targeted you with an investment or trading scam, you can also report them to the FCA or Trading Standards if you are based in the UK, or the Federal Trade Commission if you’re in America.
