How to Spot Fake Traders

“A scam is only a scam when it is discovered by the gullible that were taken in by the lure of making easy money in the first place.” – Anthony T. Hincks

One of the most pertinent issues in the modern online trading industry is for traders to be able to distinguish between reputable and fraudulent brokers. The most important question that needs to be asked and answered is how can investors protect themselves from unscrupulous brokers fronting as professional online trading financial houses.

The short answer is that it is not always obvious to distinguish the wheat from the chaff. However, not all is lost. Here are several important basic pointers which, when applied correctly, will help traders sort out the fraudsters and scamsters from the legitimate brokers:

The promise of easy money

The quotation mentioned above by Anthony Hicks accurately describes the oldest hack around. It doesn’t matter which genre is being spoken about. The reality is that there is no easy money. Therefore, if an online trading broker offers an easy way to generate large sums of money, it’s best to stay away.  A legitimate broker will display the following, or a similar, risk warning at the bottom of each website page; thereby, alerting traders to the high risk of online trading:

Risk Warning: CFD trading is highly speculative and carries a high level of risk. You may sustain a loss of part or all of your invested capital; therefore, do not speculate with capital that you cannot afford to lose.”

Know Your Customer (KYC)

The KYC process is designed to ensure that a business verifies its clients’ identity; thus, making sure that all of its clients are bona fide and are not part of any terrorist or money-laundering organisation. Therefore, when opening an account with a genuine broker, clients will be asked to provide proof of identity, a utility bill as proof of residence, and a bank statement as proof of bank account details. Because online businesses can be vulnerable to illegal financial transactions, it is particularly crucial for a reliable broker to make sure it is dealing with a legitimate clientele.

Website user interface and usability

Statistics show that a poorly-designed website that is convoluted and difficult to use will not attract customers. In the same way, an online trading interface that is thrown together without much thought for usability and user-friendliness will drive traders away.

Furthermore, it costs a sizeable amount of money to design and develop a functional online trading platform. Therefore, it stands to reason that a bona fide brokerage has spent the time and money ensuring that it has a well-designed, easy-to-use online trading platform.

On the other hand, a fraudulent broker will not spend much time developing an online trading platform. Therefore, there is a high probability that a brokerage with a low-quality website is running a scam.

Customer support availability

How available is the brokerage’s customer support department? Are the company’s contact details advertised on their website?

A legitimate online trading company will ensure that it is easy for their traders to contact them. After all, one of the most critical ways to retain customers is to make the connection between client and customer support seamless and straightforward. Identically, it is best to avoid a brokerage that makes it difficult for investors to communicate with them. It makes sense that a fraudulent operation will do its best to prevent any connection between the investor and itself.

Terms and conditions and privacy policy

The European Union has implemented its General Data Protection Regulation, making it mandatory for all online businesses to comply with their regulations around the privacy and protection of a customer’s details. Even though the GDPR is designed for European Union citizens and people working in the EU economic area, it also deals with the export and protection of data outside of the EU.

Therefore, when checking for a legitimate brokerage, it is vital to ensure that the company complies with the GDPR. All genuine brokers will ensure that they have fulfilled the GDPR’s requirements.

Final words

This content only touches on a few of the elements that will expose a fraudulent online financial trading brokerage firm. However, the most critical takeaway point is echoed in the quotation mentioned above by Anthony T. Hincks. “A scam is… discovered by the gullible that were taken in by the lure of making easy money.” Succinctly stated: There is no easy way of making money.