The primary objective of trading is to pull in a handsome Return on Investment (ROI). Unfortunately, numerous scammers and fraudsters see an opportunity in this lure of easy money. Investors have every right to desire money by legitimate means, but the downside is that the stock market has its fair share of fraudsters preying on novice investors. Therefore, given below are tips to help you become aware of market scams and trade safely.
Steer clear of fraud advisers: They typically create a loss and an intentional one!
These days hundreds and thousands of fraudsters pose as advisors and stock market experts. They generally prowl on different online platforms, and your likelihood of falling prey to one is enormous if you don’t know how to identify the same. It may strike you as the general rule of thumb for novice investors to enlist SEBI-registered investment advisors to learn the ropes of trading. But there is a massive risk involved here: sharing the login credentials to your account with a third party makes you vulnerable to fraud activities.
The notion of an expert trader executing trades on your behalf may seem convenient, but this might also open Pandora’s Box for you. This approach allows a fraudster to stage a loss in your account utilizing non-genuine trades and transferring your money to another trading account. The most distressing problem of it all is that you will be left in the dark, nowhere close to figuring out that you have been scammed.
The key is to avoid sharing your login credentials with anyone enabling a third party to trade on your behalf unless it’s a proven, tech-driven trading solution, in complete compliance as per the regulatory framework. Also, do not trade in instruments that you don’t understand well. Furthermore, if you are at the receiving end of a loss because of compromised login details, you can lodge a complaint against the same. All in all, the most effective approach will be to trade in something that you know well and do away with the role of a third party.
Watch out for pump and dump schemes – they are still around!
Numerous movies bring to light the practice of a pump and dump scheme, and now the financial world is no stranger to it. However, greed still paves the way for the malpractice. This scheme is synonymous with micro- and small-cap stocks, as they are the easiest to manipulate. It can be carried out by anyone who has access to an online trading account and the knack to manipulate investors into buying a stock supposedly ready to take off.
Basically, to pull off this scheme, fraudsters buy heavily into a stock that trades on low volume, thereby pumping up the price drastically. The scheme also involves posting promotional messages online with claims to leverage inside information that development will result in an upswing of the share’s price. Once investors buy into the scheme, the fraudsters then sell their shares and plunge the stock dramatically, causing investors to lose money.
Your safety mechanism will be to be wary about unsolicited notices of a stock that is ready to take off. Always keep in mind to assess the source and watch out for red flags. The notices generally come from paid promoters and insiders. Know that it is a red flag if an email or newsletter raves about the hype and leaves out any mention of the associated risk. As such, ensure that you do your research in stock before buying a share.
The key is never to let your guard down when it comes to investing. That is to say, do not buy into stock tips that promise quick, profitable returns. Do as much research as you can before investing. Make sure to confirm the authenticity of the businesses and promoters when it comes to promotional newsletters, notices and emails. Know that many scammers tend to send SMS using shortcodes that give the impression of a reputed brokerage firm. Keep this in mind. And lastly, stay away from penny stocks – invest in them only if you can afford to lose your money.