One part of the risk in stock trading comes from the uncertain and unpredictable trading environment. The trouble is further expanded due to stock broker scams that are highly prevalent in the market.
One can protect his or her investments and trades by being aware of such stock broker scams and not putting their hands in the fire.
In this article, we will discuss the most common stock broker scams you must be aware of.
False and manipulative information
There may be many reasons for your broker to provide you with misleading and false information. Negligence, company or own personal interests can be some common reasons to hide or provide such incorrect information.
Misinterpretation of information
Many times brokers may misinterpret or omit some information that might prevent you from taking up a trade. Just so you invest in a trade, the broker might not tell you what is to be told or misinterpret the whole situation. This reduces your ability to make sound and well-informed decisions for your trades.
Trading without consent
According to law, a broker has to take persimmon and authorisation from the trader before making purchases on behalf of the trader. If a broker goes on taking up trades in your name without notifying you, then it is considered a stockbroker scams.
The broker is responsible for stating the terms and conditions of the trade. At the same time, a broker must confirm the details again when the trade is fulfilled.
No license or registration
Any broker functioning against the laws and regulations can be severely penalised. A broker must obfain6a license and register itself to the concerned regulatory body.
Breach of contract
When the broker does not adhere to the agreement or deal that was made and does not honour the terms of the trade, it is called the breach of contract. Such violations and stockbroker scams can be easy to prove because it is on the paper.
Making unsuitable investments
Sometimes the broker might make some investment and purchases that do not go well with your financial go or the ability to stand risks. A broker might do so to get more commission on trades or to put extra money in the pockets. By law, a broker is required to abide by the regulations and guidelines and work in the best frame for the investor or trader.
Lack of diversification
Over concentrating the portfolio on some specific securities is very careless and eventually illegal. One can incur high losses due to such malfunctioning and irresponsible acts. The whole job of a stockbroker is to help traders and investors manage and build a diversified portfolio by rendering sound trades.
Abuse of margin accounts
The capital that is used by the broker to facilitate trade and purchase securities is deposited into the cash account. However, for leveraged positions, a margin account is used with twice the actual capital to increase the profit potential. The brokerage fee is to be charged on the original capital deposited by the trader. Many times, fraud brokers charge commission the marginal account capital.
Difficulty in withdrawals
Sometimes the brokers place unrequired restriction or unnecessary requirements on investors and traders who want to withdraw their funds. For example, an excessive amount of formalities and documentation process, higher withdrawal charges, longer holed times, and more.
Many times mischievous and fraudulent brokers suspend or freeze the trading platform during hot trade hours. That is why traders cannot cancel trades, and these brokers can fill out the orders or trades at prices over the market price.
The stock broker scams mentioned above can be avoided and combat if one pays close attention. It is better to take the necessary precautions than taking action later. Always trade with brokers who are registered and authorised by regulatory bodies. Read terms and conditions diligently and question everything that seems like a sham. Do your research before funding and depositing huge capital with any broker. Double-check and verify the information.
A legitimate broker and firm would be transparent and honest about the risks associated with trading. On the other hand, scammers would give you fake promises.One must also discuss the withdrawal policies with the broker, the restrictions, fees, and timeframes. Most trusted and reputed stock brokers.