Stock market experts generally agree that any time is a good time to get into the stock market if you’re looking for a good place to start investing. But, the stock market is also rife with fraud and different types of stock trading scams. So, you should be aware of the risks and know how to avoid them in order to keep you and your funds safe from stock market scams.

How To Avoid Stock Trading Scams: The Signs To Be Aware Of

While there are many different types of stock trading scams, there are some warning signs to watch out for that many of them have in common.

Unregistered Brokers and Guaranteed Returns

One of the biggest red flags of a stock trading scam is that an unregistered broker is offering you guaranteed returns. These fraudulent brokers often operate penny stock scams, and try to get you to buy a bunch of cheap stocks in order to inflate the prices and make themselves and their shady clients money. This is what’s known as a pump and dump scam.

The reality is that there is no such thing as a guaranteed ROI in the stock market — there is always some level of risk. To avoid being scammed, always work with registered, reputable brokers. If you can get a personal reference from a friend or family member who has worked with the broker successfully, that’s even better.

Pressure and No Pressure From the Scammers (Both Can Be a Scam!)

Stock scammers, such as fraudulent brokers, often pressure you into sending money right away by saying there is a once-in-a-lifetime opportunity that they don’t want you to miss out on. One of the golden rules in stock trading is don’t let your emotions guide your decisions. Always take your time to investigate and contemplate potential investments before you pull the trigger.

On the other hand, some scammers play the long game and take a more patient approach to defrauding you of your hard-earned money. For example, a scam penny stock broker might spend weeks or months earning your trust on small trades, then try to convince you to make one big trade, which is the scam they’ve been planning all along.

You Receive Unsolicited Offers (Most Likely a Pump and Dump Scam)

Always be suspicious of any type of unsolicited investment offer, especially if it’s regarding a company you’ve never heard of before. Scammers often artificially inflate the prices of fake shell companies by cold-selling their victims, then dump off all their shares at a huge profit. When they do this, your stocks will plummet and you’ll lose big on the investment.

Everyone Seems To Be Buying It

One sales tactic that fraudulent brokers and paid stock promoters love to use is the “everyone is buying it” pitch. They’ll claim that everyone is investing in a certain stock because it’s about to blow up and rise a ton in value, and that you should buy it too. Before investing in any stock, you should do your own research and determine whether or not you actually believe in the company and are interested in investing. Never give in to a fear of missing out on something just because other people are (allegedly) buying it.

Understand That Listings Are Not Reassurance Against Fraud

Just because a stock is listed on a big stock exchange, such as the NYSE or NASDAQ, doesn’t mean that it can’t be part of a stock trading scam. Be especially wary of stocks with low market cap values and low trading volumes, as these are the easiest for scammers to manipulate for their own benefit.

What To Do To Avoid Being Part of Stock Fraud

Ask Questions

Scammers use high-pressure sales tactics because they don’t want you to do your own research before investing. Always ask brokers for more information and independently verify any claims they make to ensure they are telling the truth. Also, ask yourself things like “what does this person stand to gain from me investing in this opportunity?” and “why are they giving me this tip when I’ve never contacted them?”

Use Your Gut Instincts

If something feels off in terms of a stock trade, it probably is. So, when in doubt, trust your gut. For instance, if someone reaches out to you about a stock investment opportunity that sounds legit, but you are suspicious of the person or don’t know why they are reaching out to you specifically, don’t fall for their pitch.

Research and Read Reviews

If an individual broker or stock broker firm contacts you to try and gain your business, always look them up online to ensure they are legit. Look for reviews on Google or on reputable investment information sites to see what past clients have to say about them. Also, Google the company’s or person’s name, followed by keywords like “scam” and “fraud” to see if they have already been flagged for any type of shady behavior.