Don’t let prop trading scams ruin your journey—spot fraudulent firms with our simple guide to staying secure.
There has been a sudden surge in the popularity of prop trading, with many traders being attracted to the idea of making fast money. But, as happens with any quickly growing market, it created a hotbed of scams. Sadly, this is what happens to many who are unable to recognize prop trading scams in time: they lose their investment.
Whether you’re a newbie in the prop trading world (or have traded for a long time), you need to understand what to look out for. Sadly, some firms target novices, providing them with lofty returns with little work, which is often a warning sign.
How to Identify Prop Trading Scams
A prop trading scam can come in different shapes or forms. There are genuine companies, but many scammers operate under the guise of a well-established company. Here are some red flags that should make you think twice before giving your trust to a prop trading firm:
- Unclear Profit-Sharing Systems: A reputable company will always be straightforward about how traders and alike share their profits. If the profit-sharing plan is complicated or is not revealed ahead of time, it’s a sign that something is wrong. In prop trading scams, these details are hidden, and if at all you ask for it, they give vague and evasive answers. Know exactly how and when you will be paid.
- Fake Returns: If a company tells you that you could get 12 percent each year with little risk, run the other way. Remind yourself of the age-old saying: If it seems too good to be true, it likely is. These sorts of grandiose claims are ground zero for prop trading scams — very little to no effort for high returns. The bottom line is that no proper trading strategy is able to give you money right away, and every trade has potential risks involved.
- Hidden Charges: Genuine businesses will charge fees, but generally only with disclosure and relatively simply. With scams, they like to hide fees in the fine print, or tack on additional fees after you’re already sucked in. The bottom line: read the fine print, or you could incur costs that were not planned for.
- Forceful Depositing: If a company is pressuring you to deposit money quickly or threatening that your account will be closed if you don’t pay immediately, it’s a problem right there — classic scam. A credible firm will not ask you to take financial steps in haste. Always do the proper research before investing any money.
- Absence of Licensing and Transparency: Most of the reputable prop trading firms are actually minors with a license, and the majority of them are registered with financial regulators, e.g., FCA or CFTC. Watch out if a firm tells you nothing about its regulation or its management team. Before giving any money to a firm, ensure you check the official regulator websites to confirm they are licensed.
Types of Scams Regularly Seen in Prop Trading
Though every scam that shows up may vary slightly, there are many similarities in the methods that thieves use. Knowing the most popular prop trading scams can help you avoid them:
- Bogus Trading Challenges: A lot of prop trading firms expect you to complete a challenge/test to be granted funding on your account. On the other hand, those fake firms will ask you to pay for the challenge, and they will never fund you back. These tests are offered by good, legitimate firms only and do not incur upfront deposits with live accounts.
- Fake & False Success Stories: You should be careful of companies that boast too many success stories for their traders making huge amounts of deals. Such stories tend to have stock photos or phony testimonials. True traders know that patience and determination are what you need in the market, not a magic carpet to turn rich overnight.
- Fake Website Scams: Fraudsters create websites that are nearly identical to a legitimate prop trading firm, so unsuspecting victims enter their details. Fraudsters get your sensitive data using phishing websites and can access your trading accounts.
How to Avoid Being Scammed in Prop Trading
The best way to protect yourself from prop trading scams is to remain alert and continue to educate yourself about prop trading scams. So here are some key steps you can follow:
- Reputation: Research the firm, looking at its history, reviews (like this), and regulatory status before signing any agreement. Check other traders’ reviews about them in independent reviews and forums.
- Avoid Unregulated Platforms: Always choose reputable trading platforms that are under regulatory authority. So take precaution. There are plenty of reputable firms out there, so don’t rush into deals with people who you have no clue about. Know the monetary state of the company and what risk factors they have.
- Steer Clear of Shady Terms: If you know that a firm’s terms and conditions are fishy, they probably are. As with any business relationship, transparency is critical in prop trading. Walk away from companies that are unable or unwilling to provide you with specifics, or those that hesitate when asked to elaborate.
- Lodge a Complaint: If you have identified a potential scam or if you have already been scammed, report the firm to a relevant regulator at the earliest. This is in the interest of protecting others and may prevent more harm being done.
Already Been a Victim of a Scam? Here’s What to Do Next
There are, unfortunately, traders who do get scammed by prop trading scams. Here’s what you can do if you suspect you’ve been scammed:
- Cease the Cash Transfers: If you have been instructed to send more cash in order to get your funds released or secure your account — cease at once. Such prop trading scams entice you to invest more money to free up your capital.
- Prepare Documents: Get all details and documents regarding the scam, such as emails, payment confirmations, screenshots of their site, and everything. This will help authorities look into the scam and might help with your funds.
- Lodge a Complaint: You can also lodge a complaint about the scam to relevant financial authorities in the country. They can act against the firm and also help you recover some loss costs too.
Final Thoughts
Worry not, as staying abreast with the latest from financials is the best way to guard yourself against prop trading scams as scams get more opaque with time. However, if you spot the signs, do your homework, and invest wisely, you can safeguard yourself against being a victim of a prop firm scam. And if it sounds too good to be true, then it probably is. Never be afraid to listen to your gut and not feel pressured to make a decision. Protect your pockets and keep your head on a swivel in this fast-paced space.
