As we saw in the articles "Speculating on the stock market in the short term: What you need to know (and hardly anyone will tell you)" and "Short-term trading: a very popular ruin”, Both studies and practice make us see that short-term speculation is not the most advisable way of making our savings profitable. Despite this, we are constantly seeing people promising very high returns by short-term trading using different methods that are actually scams.
In this article we are going to see the tricks that these scam traders use to make us believe that they can achieve impossible returns through short-term speculation and I will give you 3 tips to avoid falling into them.
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- Warren Buffet, considered the best investor in history. During his long career as an investor, which continues to this day, Buffett has achieved an average return of approximately 20% per year.
The first red flag to recognize a scam trader is to see the returns they usually promise. Among scam traders it is normal to see promises of returns of 100% per year, 20% per month or even higher returns.
This promise of profitability is a pretty clear sign that we are dealing with a scammer. But how is it possible that people believe these siren songs? Shouldn't it be obvious that we are dealing with a scam?
Obviously scam traders are not dumb. As tools, they use different methods or strategies to make you believe that the impossible returns they promise are available to everyone quickly and easily (which is precisely what they want to sell you).
Next, we will see the methods that are commonly used in trading scams.
The methods used by scam traders
In this article, I'm going to talk about 3 methods that scam traders often use today:
- Proven profitability
- Accurate forecasts
- Get out in the media
The demonstrated profitability method consists of demonstrating the profitability that they are capable of achieving by providing the results of a trading account.
Scam traders promise that anyone can achieve high returns in a short time using the same methods as them.
Where is the trick?
For this deception, what the fraudster trader does is open several small accounts in one or more trading brokers. Accounts are usually small (around € 500 or € 1.000) because in most accounts you will lose all your money.
What they do in these accounts are very speculative bets in which the normal thing is that they lose all their money, but in which they can also win a lot if it goes well. It is somewhat similar to playing roulette at the casino, but on the stock market.
The trick is to show the account in which they have made the most money with these high risk bets, hiding the money they have lost in other accounts. In this way, by showing a real account with high profitability, they make them believe that it is a safe and achievable profitability, when the reality is that to show an account with high profitability they have lost all their money in many other accounts that remain hidden.
This method consists of hitting several correct predictions in a row. The scam trader makes these forecasts before they happen and presents a great investment opportunity through leveraged trading.
In this way, the scammer trader manages to gain the trust of those people who have seen how he has managed to hit these forecasts several times in a row.
Where is the trick?
In this case, the key is to have access to a very large audience and to be able to segment it. This scam is usually done through phone calls or in different internet forums, since it can be accessed by many people at a low cost.
What the scammer trader does in these cases is segment the market by making contrary forecasts into different groups. This way, it will always be right for 50% of the people.
In the following graph we can see what would happen if the trader used this method in 8 different groups.
The process is the following:
- First of all, you would make opposite forecasts in 8 different groups. Hitting 4 and missing 4 others.
- He would continue to do the same in the remaining 4, hitting 2 and failing 2 others.
- Finally, he would do it again in the 2 groups in which he has been successful, failing in one and successful in another.
It is true that the scam trader does not achieve his goal in 7 groups out of 8. However, in the group that has managed to hit 3 times in a random way, he manages to generate great confidence in his trading skills. The problem is that in this group they do not know that the successes are due to nothing more than sheer luck, which usually causes them to end up falling into the hands of these scammers.
If you want to see a real example of this type of scam in action, I recommend my article in which I tell how they tried to scam me through a financial bar.
Get out in the media
This method consists of taking advantage of the principle of authority that the scammer trader achieves thanks to being in the media.
We are before the coarsest means, but also the most effective.
In this case, the scammer trader is limited to lying without providing any type of evidence. You just have to say on television or at conferences that you make a lot of money from trading. People believe it because the scammer comes out in the media and gives a picture of success that in theory comes from his success as a trader (although in reality it comes from his success as a scammer).
Three tips not to fall for the trading scam
We have just three cheating methods commonly used by scam traders. They are methods that are still used today. You must bear in mind that scammers tend to reinvent themselves and innovate in their deceptions.
To finish, I want to give you 3 tips to avoid falling for these types of scams.
- Be aware that the stock market is full of scammers
- Know the tricks that scam traders use
- Be suspicious when they offer you a method to earn a lot of money on the stock market in a short time easily and safely (only the best investors are capable of exceeding an average of 15% per year)
Lastly, I want to ask you a favor. I want you to help me alert to these scams by sharing this article on social networks so that people can be aware of them. It is a small gesture that can prevent many people from losing that money that is so hard to earn and save.
Thank you very much. 😉