How to Avoid Fraud as an Investor

It can be hard to quantify the total size and scope of the global financial market, thanks to its huge reach and vast range of asset classes.

To provide some kind of content, the global stock market capitalisation was $68 million as recently as 2014, while it has continued to increase incrementally in the years since.

This highlights the level of global investment in the market, which in turn increases the risk of fraud facing those who commit their hard-earned capital. So, how can you protect yourself against this risk?


Why Do People Fall for Scams?

The best example of financial market scams are provided by rogue brokers, who may leverage your capital by posing as licensed sites and either hacking your accounts or providing excess leverage that will inflate your losses.

The question that remains, of course, is why do people fall for this and similar scams? One reason is our inherent greed and attraction to financial gain, as the lure of ‘get-rich-quick’ schemes and excessively leveraged products tap into our desire to build wealth without too much effort.

This can prove to be a telling incentive, while it may also cloud people’s judgement and force them to make snap decisions that aren’t ultimately beneficial.

As a result, such scams also capitalise on people’s innate irrationality, which cause decisions and investments to be made based on impulse and emotion and without reflecting on the core value proposition in play. 

Scammers can also cash in on the so-called “optimism bias”, which refers to the natural and mistaken perception that we’re less likely to suffer from misfortunate than attain success


How to Avoid Scams

Some scams are relatively easy to avoid, particularly when dealing with rogue brokers and trading platforms.

If you have decided to go for trading forex, downloading a reputable platform such as the MT4, for example, you’ll be able to check out the site’s accreditations and its license from the Financial Conduct Authority (FCA).

However, other scams are harder to identify than others, so you’ll need to be proactive when protecting yourself and your financial assets.

For example, any unsolicited email that you receive from a broker or company that asks you to provide personal financial information represents a huge red flag, and it’s important not to respond to the message or open any associated attachments.

Similarly, if companies adopt an overly aggressive approach or look to bludgeon you with a time-limited offer, it’s wise to take a step back and potentially review the businesses in question to check their credentials.

Even on a fundamental level, non-reputable firms and brokers will refrain from explaining the risk associated with investment and the financial marketplace, so overly optimistic or one-sided rhetoric is often indicative of an unreliable company. 


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