When trading any financial instrument, you will want to be alert to potential scams, and as such, we have put together a list of 10 tips to help you avoid CFD trading scams.
It is very difficult these days to stay ahead of the curve, as the innovative nature of the scammers out there continues at a pace that is faster than many traders are able to keep up with. You are therefore best served by having a clear set of rules that you follow when you are trading; both when considering new CFD brokers to trade with, and also which trading influencers, or channels you might pay attention to in the markets.
10 Simple Tips To Avoid CFD Trading Scams
Whilst the list below is not fully exhaustive, it does give you a good place to start, and hopefully helps you find a trusted and safe place to trade CFDs.
1. Do your research
Before investing in anything, it’s important to do your research and understand what you’re getting into. With CFD trading, this means understanding how the market works, what fundamental factors can affect price movements, and what risks are involved. Do not assume that just because someone else says there is an amazing trading opportunity that it is true, as their interests may be quite different from your own. Being aware, and having a strong understanding of the markets you are trading is one of the best ways to avoid CFD trading scams.
2. Avoid unregulated brokers
This is an easy one, and one of the best ways to avoid CFD trading scams we can offer you. If a broker is not regulated by a reputable authority, such as the Financial Services Authority (FCA) in the UK, or the Financial Sector Conduct Authority (FSCA) in South Africa, then it is best to avoid them.
Not only are unregulated brokers more likely to be involved in scams, but you also have no protection if things go wrong. There are various different ‘tiers’ for trading regulators, and it is always best to choose a CFD broker that is well regulated across a variety of areas, whilst also holding local regulation.
3. Check for red flags
When researching a potential broker, keep an eye out for any red flags that may indicate they are not to be trusted. This could include things like unrealistic or unachievable returns being promised, pressure to invest more money than you can afford, or messages that sound too good to be true. If something doesn’t feel right, it’s probably best to walk away and look for another broker.
4. Read the fine print
When you do find a broker that you feel comfortable with, make sure you read all of the fine print before opening an account or making any trades. This includes their terms and conditions, as well as any other relevant documentation. Pay particular attention to any fees or charges that may apply, as these can eat into your profits if you’re not careful.
5. Don’t be rushed into anything
A reputable broker will never rush you into making a decision, as they want you to feel comfortable and confident with your trades. If you feel like you’re being pressured into anything, or you don’t fully understand what’s going on, then it’s best to walk away.
6. Be wary of unsolicited offers
If you receive an unsolicited offer to trade CFDs, be very wary. It is likely that this is a scam, and you could end up losing a lot of money if you go ahead with it. The best thing to do is simply delete the email or hang up the phone, and forget about it.
7. Keep your personal information safe
When you’re dealing with a broker, you will need to provide them with some personal information, such as your name, address, and date of birth. However, you should never provide them with more information than is absolutely necessary. Be very careful about giving out your bank account details or credit card number apart from within a secure site, as this could lead to fraud if the broker is not legitimate.
You will need to fund your account in some way, but you can do this directly from your own bank, or if using a credit or debit card, ensure that the website you are on has the padlock security mark next to the URL, to indicate that it is a secure site that you are using.
8. Don’t be tempted by bonuses
Some brokers may offer you a bonus to open an account with them or make a deposit, but you should be very careful about accepting any such offers. This is because there are often strict conditions attached to these bonuses, which can make it very difficult for you to withdraw your money if you decide to stop trading. In some cases, the bonuses may even be a form of scam, designed to trap you into trading more than you can afford. There are some perfectly legitimate, and highly beneficial CFD bonuses offered, but as per point 2, ensure the offer is coming from an appropriately regulated CFD trading platform, and you will be further away from a CFD trading scam.
9. Be careful with leverage
Leverage is a tool that can be used to increase your profits, but it can also increase your losses if things don’t go as planned. It is therefore important to be very careful about how much leverage you use, and to make sure you fully understand the risks involved before using it. If you have some ‘sales support’ or expert ‘account manager’ encouraging you to trade with a lot more leverage than you feel comfortable with, you are best advised to steer well clear of trading here any longer.
10. Requests to pay a commission before you can withdraw your funds
If a broker asks you to pay a commission before you can withdraw your funds, this is almost certainly a scam. You should never have to pay any fees or commissions in order to withdraw your own money, and if you do, you are likely to lose all of it, along with any additional amounts that you pay. This is an example of throwing good money after bad, and if you are in this position, do not be tempted, but seek external advice.
These are just some of the things to look out for as potential scam alerts if you’re thinking about trading CFDs. If you are unsure about anything, or you feel like you’re being pressured into making a decision, it’s always best to walk away and look for another broker.
Remember, there are plenty of reputable and trusted CFD brokers out there, so you don’t need to take any risks more than that you are already doing when trading financial markets.