How to avoid trading scams: examples and red flags

Written by
Fact checked by
Adam N.
Nov 2023

Online traders are increasingly targeted by scammers, especially in the form of forex trading scams and crypto trading scams. As many of these deceptive schemes appear legit at first glance, unsuspecting investors lose billions of dollars annually to fraudsters.

Your best bet to avoid becoming a scam victim is to choose a strictly regulated broker. Always reject unsolicited offers promising guaranteed or exorbitantly high profits, as legit and safe brokers do not employ such practices.

Key recommendations for avoiding trading scams

I have interacted with many trading scam victims and unfortunately experience shows that the money they lost is nearly impossible to recover. Together with the brokerage experts at BrokerChooser, we advise users on how to avoid deceptive brokers and spot the red flags. Here are my recommendations for steering clear of scammers::

  • Only sign up with brokers regulated by a very strict financial authority.
  • Avoid brokers that are unregulated or supervised by low-tier regulators.
  • Never trust unsolicited investment offers that promise guaranteed or high returns.
  • Be wary of promises to recover your money lost to scammers as these may also be scams.

Investors lose huge amounts of money in trading scams worldwide. Authorities reported fraud losses amounting to nearly $8.8 billion in the United States alone in 2022, up a staggering 30% from a year earlier.

The brokerage experts at BrokerChooser evaluate more than 30,000 brokers globally and monitor regulatory databases and warning lists. The 100+ brokers featured on our site are all legit and trusted entities, overseen by at least one top-tier regulator and required to meet very strict regulatory standards.

The unique Scam Broker Shield tool developed by our team offers a simple solution for checking whether you should trust a particular broker with your money.

Understanding online trading scams

Online trading scams are deceptive schemes that aim to defraud individuals who are seeking to invest or trade in financial markets. These scams come in various forms, and target unsuspecting investors, promising lucrative returns or exclusive opportunities.

Investment scams are most often promoted online and via social media channels. In most cases, you will be directed to professional-looking websites where they are encouraged to invest, either through a managed account with the firm handling trades on their behalf, or by personally trading on the firm's platform.

Most victims report that they initially make some profit to give the impression that their trading has been a success. They are encouraged to invest more money or introduce a friend or family member. Eventually the returns stop, the customer’s account is suspended and there’s no further contact with the firm.

Make sure you avoid firms that are unregulated or lacking top-tier regulation. Brokers regulated by top-tier financial authorities are legally required to adhere to very strict professional standards and are seldom, if ever, scams.

Most common types of trading scams

Scams that repeatedly succeed are the ones fraudsters revisit. If you want to protect yourself, you need to learn how to recognize the kinds of frauds you're prone to encounter.

  1. Forex trading scams: scammers offer supposed 'secrets' to successful forex trading or signal services that promise to provide profitable trading strategies and great returns. You will be enticed with promises such as ‘make $50 a day from a $300 investment’, ‘80% returns on profit signals’, or “97% success rate.’ In reality, your money is either not invested at all or placed in very risky investments. Either way, you’re likely to lose some or all of your money.
  2. Fake brokers: also known as clone brokers, these entities create websites that mimic legitimate brokerage firms, luring investors with attractive offers and trading platforms. Once investors deposit their funds, these fake brokers disappear.
  3. Ponzi or pyramid schemes: these promise high returns, but they use funds from new investors to pay returns to earlier investors. Eventually, the scheme collapses when there are not enough new investors to support the payouts.
  4. Crypto trading scams: these frequently offer exaggerated profits while downplaying any risks to the investor. Their aim is to instill a fear of missing out on a profitable opportunity others are capitalizing on. These fraudulent schemes are commonly promoted on the internet through social media and websites that mimic legitimate, registered trading platforms or investment companies. Those orchestrating these scams often claim exemption from financial regulations in your region and may attempt to deceive you by withholding funds or demanding payments for fictitious taxes, fees, or other expenses.
  5. Binary options scams: binary options are simple financial instruments, but scammers often promote them as foolproof ways to make quick money. In reality, many binary options platforms are rigged against the trader. In most cases, you will not be able to withdraw your deposited money and the scammers may use your credit card information to access even more of your funds.
  6. Recovery scams: these are fraudulent schemes where scammers pose as individuals or companies claiming to help victims recover money they lost in a previous scam. They typically promise to assist in recovering lost funds for a fee or request personal and financial information from the victim. The promise is, of course, false and the victim is essentially re-victimized a second time when they pay the recovery scam artist.

How to avoid being scammed

Being able to spot a red flag indicating you may be dealing with a scammer can potentially save you a lot of money. Here are some signs that should raise your suspicion:

Scammers are out there, preying on unsuspecting traders and investors. Be vigilant and skeptical of unsolicited offers. Legitimate brokers don't cold-call or send spam emails promising guaranteed riches.

  • Aggressive, out-of-the-blue approach via phone, emails, or social media (Facebook, WhatsApp, Telegram messages) to invest or participate in investment seminars.
  • Promises of exaggerated returns, often risk-free.
  • Requests to send or transfer cash quickly via the Internet, by mail, or otherwise.
  • Complex jargon and vague terms in client agreements.
  • Customer service is either non-existent or incredibly hard to reach.
  • Difficulty getting background information about the person and/or company.

You will need to be proactive and do some homework to steer clear of scammers.

First and foremost, check the background of the broker/firm you consider dealing with. Make sure they are licensed and regulated and are not on any regulatory warning lists Be extra careful if it is regulated under a jurisdiction widely seen as an offshore haven (e.g. Vanuatu or St. Lucia). Make sure you sign up with a regulated broker.

Don't allow anyone to pressure you into depositing money or making trades. Ask about the details of the particular market and your obligations if you participate. Always start with depositing smaller amounts and make a test withdrawal to be on the safe side.

Contact the customer service of the company to make sure it works properly.

And finally, if the offer sounds too good to be true, it is: do not believe promises of stellar returns.

Remember: money lost to scammers in most cases cannot be recovered.
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Author of this article

Edith Balázs

Fiscal Fables Storyteller | Forex • Safety • Financial Journalism

I bring 20+ years of experience as a correspondent having worked for Bloomberg, Dow Jones and The Wall Street Journal covering macroeconomics, stock, currency and fixed-income markets. I hold a Master's degree in American Studies and Journalism.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology.

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