Trading and investing are great ways to build your wealth, but they also carry risks. Other risks to consider include the potential for becoming a victim of a broker scam and the inherent risk of losing money due to market price volatility. Losing money after trusting a broker can be a disturbing experience. No trader wants to find themselves in such a situation.
Broker scams are essentially imitation schemes that are constantly changing. Another possibility is computer crime where scammers create bogus websites using real industry experts’ names and contact information who have no connection to these false websites. Although imitation fraud is among the oldest types of deception, it is also one of the hardest to spot.
A broker can interrupt your trade, conceal their exposure, or steal your money using three different manipulation techniques. Remember that this also applies to market maker brokers, who directly profit from your trading.
- Price manipulation: Although it is less frequent now, brokers still do it to get their clients to sell their holdings. In that situation, the broker uses a quick surge—which could last just a few seconds—to artificially drive the market and move your order to the stop loss.
- Routing manipulation: A broker may represent themselves as an electronic communication network (ECN) or straight-through processing (STP) broker, but they may decide to route orders to a market maker rather than a market liquidity provider or keep fees “in-house” on the B-book. This manipulation excludes you from the actual market by prohibiting your actions from impacting the market price.
- Operational disruption: It includes things like execution delays, slippage, requotes, and unexpected disconnections that prohibit you from performing ordinary trading operations. Fraudulent brokers employ this strategy to trick traders. Money is frequently awarded to brokers who keep their traders on the B-book since emotional traders are more likely to make mistakes.
Warning signs of Broker scams:
Customers should be aware of the following warning indicators, which we’ve documented below:
- Brokers use their profits to display the affluent lifestyles of their clients, which may include expensive cars, designer clothes, and lavish residencies.
- Your broker falsely asserts during a withdrawal that your money was sent to the incorrect account.
- Investment firms frequently promote higher investments and deposits.
- Brokers hide their operations behind additional fees or hidden costs.
- The need to act fast puts traders under a lot of pressure.
- Once your fortune is on the line, they vanish.
- Profits are promised to be significant and distinct.
- Ensuring that there are no risks or damages.
- Questions about withdrawal are avoided.
- The withdrawal process is complex.
In short, imitation techniques that target brokers change frequently. One of the oldest and most challenging to detect forms of fraud is impersonation fraud. Although price manipulation is not as common as it once was, brokers still use it to induce clients to sell their holdings. When routing orders to a market maker rather than a market liquidity provider or when keeping fees “in-house” on the B-book, a broker may identify themselves as an electronic communication network (ECN) or straight-through processing (STP). As a result, traders are under a lot of pressure to react quickly, which makes them vulnerable to such scams.