Scams are like uninvited nightmares for victims who have to deal with them. Imagine signing up to a trading platform aspiring to earn big bucks and getting scammed out of the blue. While losing your money to a broker scam is a constant threat, it also emotionally and mentally drains you. So many traders give up on trading after being victimized by these scams.
The trouble with the financial world is that although there are infinite opportunities, it comes with many loopholes. Therefore, one must attain input on how these scams work; what traders conclude as a proficient and user-friendly platform might be the one to scam millions.
Most victims who have fallen for brokerage scams turn mournful and feel helpless. They conclude there isn’t much that one can do other than blaming the scammer. However, there isn’t truth to that. Firstly, blaming won’t make a difference. There are two ways a trader can go;
- Precautionary Measures
Study how these scams operate, their motive, types of scams, ways they could approach you, identifiable red flags, etc. Additionally, make sure you don’t subscribe to any services until you have determined the provider’s reliability.
- Proactive Aftermath
Even if you have been scammed, the world doesn’t end there. You can report the phony broker to the authority in charge. Scammed traders can also consider recovery services that assist in getting their money back.
Let’s get on with how broker scams work;
1. About the Broker
If you aren’t accustomed to how the market works or how brokers generally operate, you should understand what a broker does. Theoretically, a broker is a link between a trader and the market. They place orders on your behalf against some brokerage fees or commissions.
They execute trades through a variety of financial assets or methods. For example, CFD trading is yet another method of trading where the broker assists you in dealing with financial derivatives by speculating and betting on their prices. Besides, CFDs (Contracts for Differences) do not operate through an exchange; they’re an over-the-counter trade undertaken between you and the broker, free of any supervision. We know that brokers generally earn their means with commissions, spreads, fees, etc. But did you know that brokers can also benefit from your losses?
How, you may ask? First, it is nothing illicit; brokers helping you with your CFD trades generally bet on the chances of a trader’s wins or losses, more on their failures, since they make a great deal of money out of it.
2. Commencement of the Scam
The greed among brokers magnifies the moment they realize that they could make profits from a trader’s significant losses. While that is one way to look at it, there are a diverse range of scams that brokers work with;
Fraudulent Portfolio and Account Managers
As you decide on whether to go ahead with your broker or not, take a look at a couple of things that a genuine brokerage firm or professional wouldn’t execute;
- A broker wouldn’t make calls unless you have pending documentation or security-related concerns.
- There is a difference between a broker and an advisor. Resultantly, a broker is someone who encourages you to trade and helps you understand the market and your goals better. On the contrary, what they do not do is give unsolicited advice on your trades.
Contrarily, when we refer to the deceptive broker, there isn’t any portfolio or account manager. Instead, it’s the retention agents who disguise themselves as account managers.
Sales Agent and Retention Staff
The person driving traders to a platform or brokerage service is known as the sales agent. It is also the first point of contact for the trader. In case of fraud, brokers employ an apt sales and retention team that uses their communication skills to persuade the audience and convert them into traders. These agents and brokers care less about your financial status, debts, expenses, etc. Instead, their motive is to ensure you make a deposit and start trading with them so the agents can earn a bonus and the broker can do away with your money.
Once the trader registers with the broker, the sales agent transfers them to the retention agents, striving to deepen their bond. They try to strengthen a trader’s trust and eventually suggest you expand your investments. Frequently, traders are also led onto investments that are sure to fail.
3. How Do They Go About With the Broker Scam
Since the broker has instilled the seed of trust, the trader has already been led to believe that they’ve collaborated with reliable brokers. Further, the user is also programmed to invest more since they presume that their funds are likely to boom. Under most circumstances, the broker allows their clients to pick up small profits at the beginning so that they feel encouraged to put in more money.
It’s hard to calculate the strategies of a deceptive broker since they plan things beyond a commoner’s imagination. While the sales team spots people who are unwary and possess the money they need, the retention team figures out their profiles and financial standing so they can suggest opening trading positions. Since the retention team comprises experts who know marketing gimmicks and get their way with clients, they manage to convince them to take debts merely to make another investment.
Without any thought, it is apparent that scams do leave a traumatic effect on the victims once they discover the scam. What we’ve elaborated above is a common broker scam. There are a diverse number of scams that brokers pull off in several unanticipated ways. Many traders don’t even know when dealing with an unregulated broker. Now, it’s primary etiquette for a trader to verify the license, regulatory status, and reviews for brokerage service. In short, put all of your research and rational decision-making abilities where your money is involved.
If you’ve been affected by any scam of a similar nature, it would be best if you reported the broker to help other traders avoid them. Additionally, you could also get your money back with fund recovery services. Click here to learn more about fund recovery, how it works, and how it can help you.