How to steer clear of fraud when trading online

In the modern, internet-oriented world, fraud is everywhere.

fraud when trading online: woman shaking empty piggy bank

The UK’s Action Fraud organisation says that over 50,000 incidents of fraud and cybercrime occurred in the UK in the 2017-18 financial year. For online traders who are looking to boost their incomes by speculating on a range of global financial and commodity markets, fraud is an even more serious risk.

However, there are ways to defend yourself. First of all, it’s vital to learn about the different types of trading fraud. It’s also a good idea to get yourself into the habit of performing due diligence – and to keep up to date with the many anti-fraud resources published by a variety of organisations. This article will explain how to put these tips into practice.

Learn about types of trading fraud

Unfortunately for traders, fraud in this field is multi-faceted – and you need to defend yourself on many fronts. Fraud can happen the instant that you sign up to a broker: if the website you choose is in fact a sham, then you may never see your initial deposit back.

It’s possible for even a savvy trader to get lured by this kind of trick, especially if social media is involved: those peddling trading schemes via social media often create the illusion of riches and wealth, when in fact the scheme is a fraud.

Many people who are interested in trading and building their wealth, meanwhile, are often either too busy or are not financially savvy enough to trade on their own behalf. As a result, they often entrust other trading professionals to do it for them. This has the distinct advantage of time-saving: if you choose the right trader and their trades go well, then it can in essence become a passive income for you.

But sadly, some professionals in this sphere are not fair players – and there have been several cases of people losing significant sums of money as a result. In one case in New Zealand, a broker was able to con people out of approximately $7m by running a Ponzi scheme forex scam.

There are also asset class-specific types of trading fraud out there. In the cryptocurrencies sphere, for example, the common trend of “initial coin offerings” (or ICOs, in which organisations aim to raise funds in a manner akin to an initial public offering) is ridden with fraud: one study found that around 80% of ICOs conducted each year in fact had some sort of scam element to them.

Perform due diligence

Before agreeing to part with your investment capital, then, it’s wise to always do your research. Finding out when a firm was set up is a good start: while longevity is no guarantee of legitimacy, the longer that a firm has been in business reduces the risk that it’s fraudulent.

This is also a good opportunity to read up on what others have had to say about a firm: if it has many positive and independent reviews in trading forums and communities, for example, then the chances of fraud are again lessened.

Use resources

It’s not all doom and gloom, however. Avoiding trading fraud is certainly possible – and one way to ensure that you’re as well-defended as possible is to make the most of the many resources out there designed to help you out. Financial regulators are there to do some of the hard work of due diligence for you, and many publish lists of brokers, professionals and others with whom they recommend you should avoid all contact.

In the UK, the Financial Conduct Authority is responsible for doing this – and its online warning list is a good starting point. If your trading plans are international in scope, meanwhile, then it’s possible to get the same kind of lists from many regulators around the world – including the Australian Securities and Investment Commission’s “Companies you should not deal with” register.

Online trading is an appealing occupation in many ways – and it’s definitely possible to achieve it. With fraud standing in the way as one major obstacle to a successful trading career, however, it’s worth investing time and energy to avoid it.

By carrying out due diligence, using the many online resources available, and also by ensuring that you stay up to date with the varieties of trading fraud that exist, you can cut the chances that you’ll become a victim.


Deborah Garlick

About Deborah Garlick

I'm the founder of Henpicked. I love reading the wonderful stories and articles women send us - I read every one. I've learnt so much and hope others enjoy them too. I believe life's about being happy and that we're here to help one another. And that women are far wiser than they often realise, so let's stop putting ourselves down.