FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

Online Stock Trading and Fraud have come a longway in the past 10 years

Online trading has definitely come a long way in the past decade.  Innovation and technology now allow you to follow and trade stocks from your phone or laptop, not to mention accessing advice and chart information at the same time.  However, our new online powers have lulled us into a false sense of security in today’s high paced electronic world.  The criminal element in our society is counting on that fact to ply their own online trade activity, that of deceiving you out of your hard earned cash.

Yes, the unscrupulous few among us had to spoil the fun for all investors.  Does $400 billion a year in securities related fraud losses get your attention?  The FBI believes it should, as does the SEC and CFTC.  The Internet has been the great enabler of our times, providing access to mountains of information and a dizzying array of applications to bring convenience to our hectic lives.  It also has brought anonymity, the cloak that hides the invisible swindler that may have tapped you as his next target of opportunity.

Does this mean that you should forgo buying an iPad and take a course in risk management instead?  Of course not!  Fraud mitigation starts and stops with you and your ability to be skeptical and use common sense.  Here are a few suggestions to help you avoid the most common pitfalls for the average investor:

Business Partners: Fraudulent brokers have stolen millions from investors.  Do your due diligence.  There are many review services for checking banks and choosing the best stockbroker or best forex broker.  Make sure your bank has a strong balance sheet, and that your broker is above board and onshore.  Consult your banker or broker for investment advice on every investment deal.

Warning Signs: Some signs, though obvious, need repeating.  Here are a few tell-tell signs:

  • Unsolicited offers should be questioned or avoided;
  • If it sounds too good to be true, it most likely is;
  • If there is little or no risk, then it isn’t for real;
  • If there is a sense of urgency, walk away;
  • Swindlers talk fast so you won’t ask questions;
  • If written explanations are not forthcoming, stop considering it;
  • If it sounds too complicated, don’t waste your time;
  • Con Artists always dress well to impress and deceive;
  • Ignore referrals from friends, until after doing your due diligence;
  • Be very skeptical when asked to send a check or wire funds.

Actual Scams Often Repeated:

The Ponzi Scheme: The swindler pays high returns from new client deposits to gain your trust and new referrals.  He takes what is left.  Bernie Madoff and Kenneth Starr are prime examples of the craft;

The “Pump-and-Dump”:  Mass communication of rumors is used to pump up a stock’s value.  The swindler unloads his shares at a huge profit only to leave unsuspecting Buyers holding the bag after the price plummets;

The “Tipster”:  The Tipster calls 100 people, passing along a “tip” to gain confidence.  He tells half that the stock will rise, and the other half that it will fall.  The next day, he now has 50 “marks” that believe.  He may continue his confidence game until he finally asks you for money.  Be sure to walk the other way.

Investment fraud generally happens to those people who never expect it or are easily tempted by greed.  Protect yourself by heeding these warning signs and being aware of the most typical scams that con artists love to use.

Source: FOREXFraud, 13.08.2010

Filed under: Banking, News, Risk Management, Wealth Management, , , , , , , , , , , ,