When it comes to financial fraud, there’s nothing bigger than the massive Ponzi scheme that Bernie Madoff ran for what may have been decades before he was busted in 2008. It’s estimated that the fraud could have been worth more than USD$64 billion.
Despite this widely publicized crime, there are still many investors that fall victim to scams. It’s estimated that as much as USD$50 billion is lost to fraud annually, and about one in ten investors falls victim to scammers. These people aren’t your ordinary hucksters. They’re professionals—innovative, and constantly thinking of new ways to scam people.
Howev6er, there are ways to protect yourself from these scams. The Internet may have made it easier for these hucksters, but it also helps investors to find out if a deal is legitimate or not. Read on for some tips to avoid getting scammed while trading.
Education Is Key
Read about different scams. There are many of them around, so the more you learn about them, the better you can spot one. Spotting red flags shouldn’t be that hard. Here are a few you can watch out for:
Deals that are too good to be true
This isn’t to say that you should refuse all great deals because those could exist; it just means you have to delve further. You should try to know everything about that stock before buying.
Information given to you freely is unverifiable
This should raise more red flags than a Chinese National Day Parade. If information is unavailable about a company’s credentials or anything else, it might be fraudulent. Keep in mind that brokers should be registered at the Securities Investor Protection Corporation (SIPC) and with the Securities and Exchange Commission. Legitimate brokers’ information is easily verifiable at the SIPC and the SEC.
Asking fees in advance
Anyone asking for fees upfront should make your ‘spidey’ sense tingling, especially if they make you pay through unconventional means, like Venmo. Make sure you’re dealing with people and businesses with verifiable credentials and on reputable sites. Read articles such as trading platform reviews to find out more about fraudsters.
Be Skeptical Of Strangers Bearing Gifts
If someone you just met is giving you a hot tip, be wary. Perhaps, the person is getting desperate and they decided to offer this chance of a lifetime on the first person they see, which happens to be you. This is probably the reason, and not because you look gullible and an easy mark. If this happens, pretend you just saw someone you know and get yourself out of that situation.
Scrutinize Investments That Don’t Come From Usual Channels
A great offer from someone you know and who works for one of the companies you know and has the proper credentials is likely legitimate. An offer from someone you never met, or from someone who’s glib and fast-talking is likely selling you the equivalent of a bridge in Brooklyn.
But, if it piques your interest, go online and search the investment. Request for a conference call with other investors. Verify with agencies like SEC and the Financial Industry Regulatory Authority (FINRA) and find out everything you can about the people involved in the investment.
Be Careful About Low-Risk High-Return Investments
There’ll always be some risk, especially when you’re in trading. Anyone can stumble upon a great deal, but the probability of that happening with an unknown entity promising low risks and high returns is low. It has even a lower chance of panning out if the offer comes from a sketchy source.
Be Patient
Don’t let others pressure you into investing. You’re not in any obligation to buy from them. Remember, if someone is in a hurry for you to cough up, they might be trying to hide something from you. Take the time you need to study the investment before deciding anything. Inquire and probe, and get answers.
Conclusion
Despite some highly publicized fraud cases, there are still investors who get defrauded, and billions of dollars are lost. Be circumspect about investment opportunities, especially if they’re too good to be true. Today’s tech might make it easier for fraudsters, but the same tech could also make it easy for you to spot them. If you suspect fraud, there are government agencies you can contact.