Numerous fraudsters carry out investment scams via online trading platforms and target people investing in forex, CFDs, and crypto-assets. Trading can be a minefield for both beginners and experienced traders. Those who are new at trading do not just need to learn about the financial instruments and trading lingo, but they also need to be careful of scammers and fraudsters who prey on novice investors.
Similarly, experienced traders can become targets because their confidence becomes complacency.
This article explains different ways in which scams are structured and what traders should do to avoid them.
Online trading platform scams – How do they work?
Investment scams on online trading platforms are often promoted on the internet via social media sites. Fraudsters attract clients by promising high returns and using fake celebrity endorsements to invest in their scams. The ads are linked to professional-looking websites where clients are persuaded to invest. These platforms either offer account management where the firm makes a trade on behalf of the client or by allowing them to trade themselves using the firm’s platform.
Initially, customers report receiving some returns from the trading platform to give the impression that the trading was successful. This further encourages them to invest more. However, after some time the returns stop, the trader’s account is suspended, and there is no further contact with the trading firm.
According to Action Fraud, more than £78 million was stolen in clone firm investment scams in the UK in 2020. On average, customers lost £45,242 to fraudsters imitating genuine investment platforms. The ongoing pandemic has made people more susceptible to these clone scams because investors are worried about their finances. The Financial Conduct Authority (FCA) also highlighted that even the most experienced investors are not safe from these fraudulent trading platforms.
Clone firms are fake firms established by scammers who use real details of companies authorized by FCA. Once these firms are set up, the scammers send phishing emails or publish fake advertisements to dupe potential investors into believing that they are genuine firms when they are not.
How to protect yourself
- Look out for online advertisements and social media posts that highlight higher returns overnight.
- Always be careful of firms that contact you out of the blue, put pressure to invest quickly, or promises returns that sound too good to be true.
- Always research the product and the firm you are considering investing with.
- Ask questions and take all the information from the firm before putting in your money. Legitimate trading platforms would always help.
- Check the firm’s details on trusted third-party sites such as government agencies or legal/financial experts.
- Make sure that the firm you have researched is the same one you are dealing with. Contact the customer service listed on the legit site.
- Always ask about potential risks, legitimate firms will be very clear with their clients, fraudsters may try to persuade with a phony guarantee.
- Genuine firms will always have a transparent withdrawal system. Ask about details related to brokerage fees, commissions, timeframes, and restrictions.
Take your time, learn about the risk, study the financial instruments, and do not hurry with the process.
