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Trading Scams

What is a Trading Scam?

Trading scams take place in the stock market when a person promises to buy or sell stock at a low price and turn around and sell at a higher price. A common strategy that these fraudsters employ is to identify a market with a lot of investors and then sell the shares with an attractive low price. Even if the price gets cheaper, the investors are never sure whether the shares in the company that they are buying are real. To avoid such scams, it is essential that you do your research before buying or selling stock shares.

Section 2: When is a Trading Scam a Fraud?

A trading scam is fraud and a fraud is illegal. Fraud laws on the books of most state and federal agencies define fraud as any fraudulent misrepresentation or practice.

Extortion Scams

Another one of the most popular scams that make the news today is extortion scams. People are trying to swindle you of money, by threatening to expose you and ruin your reputation. The scammers know that most people are not aware that there is a difference between a spam email and a business-to-consumer scam. Sending an email that says your account is being hacked, but it isn’t, is a good example. They may even use threats of death or torture to get your money. They know that if you get scared, you will send your hard-earned money to them.

Other Scams

There are tons of other scams out there and one of the most popular ones these days is Ponzi schemes, which are basically pyramid schemes that promise big returns but end up trapping investors.

Fraudulent or Bogus Stock Offerings

It is not unusual to see fraudulent or bogus offers for stocks in the news. If you are not careful, these types of offers can trick you into buying a stock at a higher price than what is worth. The trick is to never enter into an agreement with someone who you do not know or if you have not done any research into a particular company. You do not know if they have been making false claims, engaged in fraud, or even lied to you. If you are investing in the stock market, this is not a risk you should take.

Phishing Scams

If you have ever had to deal with any form of electronic commerce, you are probably aware that you will not always receive authentic company correspondence.

Pump and Dump Schemes

This is a sophisticated form of trading fraud. Usually these schemes involve a group of criminals who create a fictitious company and sell shares in this company at a cheaper price. The idea is that other investors will follow the pump and dump bandwagon and purchase these fake stocks at a discount and immediately resell them at the higher price at a profit. These pump and dump schemes are very lucrative and extremely manipulative and can be devastating for an individual or investor if he is not aware of the fraud happening around him.

Bogus Acquisitions

Buying and selling shares on an online broker, or even a national brokerage can also be used as a way of making money through fraudulent means.


So, don’t try to make money on this market. You have to understand how the market works and the risks involved before investing in stocks. Have an advisor to guide you and stick to your plan if you want to achieve good returns.