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Signs of Trading Scams

What are the signs of trading scams?

1. Look for cheap stock. Scammers want their clients to believe that the stocks they offer are cheap. If the price is ridiculously low and you get it on the second or third try, you can be sure that the stock is bogus.

2. Be wary of a stock that is so new that it doesn’t have any trading history. If a stock has no history, then it does not know what happened to its previous owners. That could be a warning sign of fraud or bad dealings by the seller of that stock.

3. Beware of stock that is poorly priced. If the price is more than a year old, the seller must have been holding it for a really long time to get the price so low.

4. The sign of a stock scam is the appearance of spammy or provocative ads that promise great returns. When you see these ads, it is a sure sign of a scam.

Make sure you see a broker’s license

In case a broker offers to sell your shares on your behalf without verifying their licenses and credentials, you can report them immediately to the stock exchange. If a broker has a license, he or she is allowed to advise on the sale and purchase of stocks on behalf of clients and the brokerage firm.

Check the broker’s disclosure

Sometimes brokers have legal obligation to inform investors of the nature and magnitude of the risks associated with the sale of their shares. A broker should also disclose fees and charges, the basis of the transaction, whether a buy or sell order was placed, whether a confirmation receipt was received and information regarding the risk of potential loss. These are some of the things a broker should disclose to the investor before you invest in their shares.

Know the difference between stocks and futures

The difference between stocks and futures are that stocks are bought and sold at specific prices, whereas futures are bought and sold at an agreed upon future price, a lot like buying a stock now and selling it at a future date. There is one exception to this rule. Futures are traded on an exchange while stocks are bought from a stock broker and sold on the exchange.

If you want to get involved in the stock market, you need to invest only in stocks. If you want to start a futures trading business, you can invest in a stock broker on the stock exchange, but remember to find out what the fees will be before deciding whether to go ahead with the plan.

The Role of the Exchange

The stock exchange is where buyers and sellers go to do their business.

Don’t invest more than you can afford to lose

You should always diversify your trading portfolio. You can decide on the number of shares that you will buy and when you should sell them. But never invest more than you can afford to lose.

Protect your trading account information

Never give out your account information to anyone. This includes your financial institution and any person who wishes to trade with your account. Let others have access only when you are sure they will pay you back if things go wrong.

Meet other market players

Many of the investors at the BSE are regular traders who are looking to make more money. Meet fellow traders and build a relationship with them so that when you are ready to trade, they can also help. As you trade with one another, you get a feel of the current market trends.

Beware of promising a quick profit

One of the most common trading scams is called short selling. In this kind of scam, the suspect sells shares in an already-established company that he claims he owns through a stock broker. However, the stock broker is only getting paid to buy the shares from the person who is selling them. Once the shares are sold, the broker sells them to the public at a higher price to make a quick profit. The suspect collects the difference from the sale of the original shares to the public and he keeps it as his profit. This type of scam is prevalent in the US. This kind of scam can result in a hefty loss of money, especially if the public actually buys the shares that are sold at a higher price to the public.

Be aware of high frequency trading

High frequency trading is when a stock is bought and sold every millisecond. The algorithm that the traders use uses this principle to place very rapid trades. All of these transactions take place in a split second and, as a result, most investors are unable to read any of the trading signals. The average investor will never notice the split second changes.

You could miss out on the opportunity to make a lot of money

When you use a high frequency trader, the chances of you being able to make profits are even smaller. On average, an average investor will only ever make a profit of around 0.6 percent per trade, compared to more than 15 percent for highly paid traders. This means that investing in the stock market could be a losing proposition even for the savvy of investor.


When you are new to investing in the stock market, you must not risk all your money. It is advisable for you to establish a saving plan and gradually increase your investments. If you can begin by investing as low as N10,000 then gradually increase your investment, you will enjoy the financial freedom you deserve.