“Facts are threatening to those invested in fraud [scam].” – DaShanne Stokes
The World Wide Web is full of “horror stories” about the latest scams and fraudulent activities that have been committed against innocent victims. There is no doubt that, because of the ease with which people can access the Internet, it is just as easy for investors to get caught in a scam. It is essential, at this juncture to note that there are also authentic online financial trading brokers who ply their trade via the Internet.
Thus, not everything is good, and not everything is wrong on the World Wide Web. The salient point here is that it is vital to be able to discern between what is genuine and what is fraudulent.
Scam: A definition
Before we look at some of the different scams used by fraudsters to embezzle people’s finances when investing online, let’s take a quick look at what a scam is:
The quintessential definition of a scam is a “dishonest scheme or fraud”. It doesn’t matter what category the scam falls into; whether it is an internet scam or a personal scam, it is all one and the same. Additionally, it is necessary to take note of the fact that the words “scam” and “fraud” are used interchangeably throughout this discussion as they both have similar meanings and can be interpreted the same way.
It is also worth noting that the only way to combat fraud is to expose it to the truth. By way of an additional explanation, the quotation mentioned above by DaShanne Stokes iterates a critical detail: Facts or truth will expose a scam or fraudulent activity.
Types of online trading scams
There are many different types of financial scams like phishing emails, prizes that require a deposit up front, telephone calls directly users to a website that allows them to enter their banking details, and a request to help the requestor transfer large sums of money across the globe via the requestee’s bank account.
Online trading scams are slightly different; although they can incorporate all the types mentioned above. Primarily, an online trading scam involves ripping people off in one way or the other through the pretence of investing their money in stocks, bonds, or any other financial market asset.
The other thing to remember is that most online fraudulent activities are similar to schemes that were around before the rise of the Internet. The only difference is that a glossy website makes them more difficult to spot. Therefore, here are a few of the more popular scams to help you work out fraudulence from authenticity:
This is a pyramid scheme where new investors’ funds are used to provide dividends for the older investors. A pyramid is shaped like a triangle, so the person at the top of the triangle receives the funds from all the people listed underneath him. Not only is a Ponzi Scheme illegal, but it will eventually collapse when the older investors are due to be paid more money than the new investors can bring in.
Securities fraud is also known as investment fraud and incorporates different types of illegal financial activities including corporate fraud, internet fraud, setting up dummy corporations, insider trading, accounting fraud, and microcap fraud. Again, the scam that interests us is Internet fraud. And the most pertinent con within the Internet scam category is where falsified information is disseminated via online trading information boards, review sites, and discussion forums (otherwise known as a pump-and-dump scheme).
This falsified information aims to direct traders towards investing in a “stock of the month” to dramatically inflate the stock price or to stay away from a specific asset to force the price down by large numbers. In a nutshell, these fraudulent tips are designed to artificially manipulate the financial market in the fraudster’s favour. When the price reaches the level the scammer wants, he then either buys substantial amounts of the share at a very low price or sells equivalent amounts at an inflated price.
Misrepresentation of facts
Possibly one of the most straightforward scams involves creating an online trading website that attracts investors. However, instead of noting that online financial market trading is highly speculative, high-risk venture and should be undertaken with care, the website advertises that trading is low-risk and there is lots of money to be made when investing large sums of money.
It is clear from the above text that internet and financial market trading scams are rife. However, once again, as the quotation by DaShanne Stokes emphasises: Truth will expose fraud. Therefore, before you sign up with an online trading company, be sure to check whether they are fraudulent or not.