When you are signing up with a broker for trading, it is normal for you to assume that they will represent your best interests at all times.
When you are signing up with a broker for trading, it is normal for you to assume that they will represent your best interests at all times. Their primary job is to help you make more money and in doing so, they earn a fee for their services. Unfortunately, in today’s modern age, scams have become quite common and online market share broker scam can also happen. This is when these brokers put their own financial interests above yours, violating the trust you have put in them and causing you to lose hundreds of dollars of your hard-earned money. These days, the number of such scams have gone up, but before getting into its details, it is important to distinguish between broker fraud and normal investment losses.
Just because you lose money through your investments doesn’t mean that you are a victim of online market share broker scam. It is natural for the markets to fluctuate and incurring some losses is a common part of the investment process. No broker can insure you against market risk. But, beyond the realm of these normal investment losses, when brokers cross ethical standards and place their interests above yours, you can end up being a victim of broker scam. In order to figure out if you have been scammed and to steer clear, you need to know the different ways online market share broker scam can happen.
- Unsuitable investments
Brokers have the responsibility of understanding their client’s risk tolerance, investment experience, income, financial needs, other assets and investment goals before they can recommend an investment to them. Therefore, legitimate brokers only recommend investments after they have studied your portfolio and understood your situation. If they recommend any unsuitable investments that are not in accordance with your goals and risk tolerance, it is deemed a fraud.
- Omitting or misrepresenting facts
If your broker provides misleading information or withholds material facts that can have an impact on your investment decision, it is considered an online market share broker scam. Professional brokers would never do this to their clients because their goal is to work in the best interests of those they represent. Any information, such as liquidity, sales-related compensation, risks, trading fees or something that can influence your trading decision should be disclosed to you straight away. If the act is deliberate, it will fall under the category of fraud or scam, but if it is an honest error, it will be regarded as incompetence.
Sometimes, people also suffer excessive losses in their portfolio because most or nearly all their money is invested in one market sector or instrument. This could be because your broker is over-concentrating rather than diversifying. Portfolio diversification has been proven to be an effective way of reducing risks and your broker should help you accomplish this goal rather than doing the opposite. If they don’t do so, it is regarded as investment fraud.
- Unauthorized trading
A very common online market share broker scam is when your selected broker makes unauthorized trades on your behalf. Just because you have opened an account with them doesn’t give them the right to take decisions, especially when you have not granted them permission. If you have given them the leeway to do so, then it will not be regarded as a scam. However, if they choose to take action without your consent or knowledge, it will be considered a scam, especially if that trade results in heavy losses for you.
This happens when the trading activity in your account becomes excessive and your broker claims that they are simply trying to pursue more profits. But, you should note that churning is also a kind of online market share broker scam because it is mostly done by those who receive commission for every transaction. Brokers start churning because higher transaction frequency will result in increased commission for them, which is an incentive for them, but may not be in your best interests. If you have given discretionary authority to your broker over your trading account, then you should keep an eye on trading activity closely for determining whether they are being fair to you or if you are being scammed.
- Timely execution
Has your broker ever failed to execute your trade on time? They are required by law to execute all your orders promptly and not doing so is just another online market share broker scam because it may go against their interests. If they refuse your order or delay it deliberately, there will be a good reason for it and it is usually done by brokers to scam their clients. Authentic brokers will never delay any trades because their aim is to help their clients make the most profits from their investments.
- Unregistered or unlicensed
All kinds of brokers, no matter what financial product they might be selling or service they might be providing, have to be registered in order to do so. A genuine broker will not hesitate in going through the legal process and fulfilling all the requirements for getting registered and licensed. But, if the broker you find is unregistered and unlicensed, there is a good chance it is another online market share broker scam and they will vanish overnight with your funds, leaving you empty-handed.
- Lack of information
A clear sign of a legitimate online market share broker is that they will be upfront about their company, services, terms and conditions, policies and their costs. Unlicensed and fraud brokers, on the other hand, will provide very little information, and what information is available is quite vague. If you want to steer clear of an online market share broker scam, you should never sign up with such shady brokers and always do your due diligence. In case that you do end up becoming a victim of such scams, there are services like Money-Back that can come in handy and help you recover your investment.