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An Insight into Common Trading Scams

Are you fascinated by traders showing off those big large screens and screenshots of their accounts that show Lacs and crores profit …!!

While some of them may be legit, Not all of them are. And one needs to be aware of some of these common trading scams.

Pump and Dump Scams

A pump and dump scam is a type of stock market fraud in which the scammer artificially inflates the price of a stock by promoting it through false or misleading information. Once the price of the stock has been artificially increased, the scammer sells their shares at a profit, causing the stock price to plummet and leaving other investors with worthless shares. These scams often target small or unknown companies with low liquidity, making it easier for the scammer to manipulate the price. Pump and dump scams can occur through various channels, including social media, email, and online forums, and can have devastating consequences for unsuspecting investors.

Binary Options Scams

Binary options scams are a type of investment scam that promises high returns with little to no risk. Binary options are a type of financial option where the payout is either a fixed amount or nothing at all, based on the outcome of a yes or no proposition. Scammers use various tactics to lure victims into investing in binary options, such as fake testimonials, high-pressure sales tactics, and promises of quick and easy profits. Victims often lose their entire investment, as the scammers manipulate the outcome of the binary options trades to ensure that the investor loses. Binary options scams have become increasingly common in recent years, and investors should be cautious when considering any investment opportunity that seems too good to be true.

Forex Scams

Forex scams are fraudulent activities that take place in the foreign exchange market, where traders buy and sell currencies. These scams can take various forms, such as fake forex investment schemes, unregulated brokers, and Ponzi schemes. Scammers lure victims with promises of quick profits and low-risk investments, but in reality, they use deceptive tactics to steal money from unsuspecting investors. Common forex scams include the promise of guaranteed returns, insider trading, and fake forex robots. Investors should be wary of any forex investment opportunity that promises high returns with little risk and should only work with regulated forex brokers with a good reputation in the industry.

Pyramind Scheme Scams

Pyramid schemes are a type of fraudulent trading scam that relies on recruitment to generate revenue. In a typical pyramid scheme, a person recruits others to invest in the scheme with the promise of high returns. These new investors are then encouraged to recruit more people, and the cycle continues. As the pyramid grows, the early investors receive payouts from the investments of the new recruits, while the newer investors struggle to recoup their initial investment. Eventually, the pyramid collapses, and most of the investors lose their money. Pyramid schemes are illegal in most countries and are often disguised as legitimate investment opportunities or multi-level marketing programs. Investors should be cautious of any investment opportunity that relies heavily on recruitment and promises high returns with little effort.

Guaranteed Tips and Results Scams

The “Guaranteed Tips and Results” scam is a prevalent fraud in the Indian stock market where fraudsters promise high returns of 3-10% daily and 30-40% monthly. The fraudster claim that their tips are 90% accurate and their old clients are making around 40% in profit. Many people who try these trials become victims of these fraudsters afterwords. All the tips provided by them during the trial period proves to be 100% accurate. Seeing the results of the trial period, the traders/investors subscribe to the monthly/yearly recommendation plan of these fraudsters. They pay a high fee to subscribe to these subscription plans. However, after the registration, most of their tips don’t work.

Now, let us see how these fraudsters are able to provide 100% accurate recommendations during the trial period.

Suppose, these fraudsters agree to give a trial period of 3 trading days. In other words, they agree to give 1 recommendation to buy or sell a stock for three trading days. But there is a dark side to this scheme that the investors do not know. During these three days, they don’t send the tips to just one person. They generally send the tips to thousands of people.

Let us say, they start the free trial service with 1,000 people initially to send the tips.

Day1: On day 1, these fraudsters send alert messages of ‘SELL’ call of stock to 500 people and ‘BUY’ call to other 500 people for the same stock. Obviously, either the stock will go up or go down (they generally choose a highly volatile stock so that the probability of stock moving upward or downwards is higher). Therefore, on day 1, they have sent a successful tip to 500 people. They, discard the other 500 people for whom the tip didn’t work.

Day2: On day two, they again send a message to SELL another group of 250 people and BUY the stock to the other 250 people. Obviously, again one group will receive the correct recommendation. They again discard the other group whom they sent the wrong tip.

Day3: On the last day of the FREE trial, they send buy suggestion to 125 people and sell suggestions to another group of 125 people. Hence, 125 people will receive the correct tip for three consecutive days of the trial period.

Now, these 125 people will now think that all the recommendations provided by these fraudsters for three continuous days were correct. Therefore, many of the people from this group will subscribe to the tips and recommendation plan and become a victim of one of the most common scams in Indian stock market.

Let us assume that the charge for the subscription plan is Rs 30,000 for a year. If even 20 people are trapped in this scam, these fraudsters easily make around 30,000*20 = Rs 6 lakhs, simply by sending fraud SMS.

Soon after subscribing to the tips from these fraudsters, the investors/traders start losing money. The tips aren’t working anymore. Overall, these people lose their money apart from paying a heavy registration fee for taking guaranteed tips and recommendations.

These are some of the common trading scams, which one should watch out for..!!

To avoid falling victim to trading scams, it’s important to do your due diligence before investing. Research the company and its track record, and never invest in anything that sounds too good to be true. Also, be wary of unsolicited investment offers and high-pressure sales tactics.

and always only take investment advice from SEBI-registered investment advisors.

If you suspect that you have been a victim of a trading scam, report it immediately to the relevant authorities, such as the Securities and Exchange Board of India (SEBI) or the police. They can help you recover your money and prevent further fraud.

Stay vigilant and stay safe.

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