CFD Scams: What Are They and What to Do About Them?

CFD Scams: What Are They and What to Do About Them?

CFD or Contract of Differences is an increasingly popular form of trading. It is considered an ideal trading method for those who want to make a quick return, as opposed to buy and hold investments that grow over a long period of time. The downside to this type of trading is that it can attract traders who may be desperate for quick funds. This attracts CFD Scam artists who take advantage of cash-hungry traders. 

The number of CFD scams is increasing, and it can be difficult to determine which CFD brokers are the real thing and which are scams. Consumers need guidance in the area of online trading and research they can depend on to stay safe while investing. 

Trader Defender tracks and investigates CFD scams. Our team consults with clients who have lost money to fake CFD brokers and have been taken advantage of by phony CFD investment schemes. We launch a full investigation and create intelligence reports that can help authorities deal with CFD scams, catch those responsible and help the client receive a return on their funds.

About CFD Trading

CFDs or Contract or Differences is a form of short-term trading. It works through a contract between the seller and the buyer. The buyer agrees that they must pay the difference between the value of the contract at the time it is initiated and the value when the contract is due. Unlike stocks and bonds, CFD trading is a way traders can make money on differences in the value of the asset without having to buy and sell the actual asset. 

When you buy a stock, you are purchasing actual shares or a portion of a company. Stock buyers receive a certificate or something verifying ownership. When the shareholder wants to sell the stock, they initiate a sale of the stock through a broker and receive the funds. The same is true of bonds. CFDs do not involve actual ownership. 

The benefit of CFDs are the fluidity and quickness of trading. Because traders do not have to own the actual asset but are simply trading value, CFDs do not cost as much as stock or bond trading. However, this form of trading can be highly volatile because the value of the assets fluctuates rapidly. This can lead to significant gains but also substantial losses. 

Reliable brokers are essential for every type of trading. However, since CFD trading deals with value rather than actually owning the asset, the trader is more reliant on the broker than if they actually held stocks or bonds. The trader requires honest and current updates about the value of their trades. This puts the broker in a position of power and control which unfortunately makes this type of trading attractive to fraudsters and can explain the prevalence of CFD scams.

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CFD Trading and Risks

CFD trading, as mentioned above, is more volatile than many other types of trading. This means that even under the best circumstances, traders can lose a large amount of money trading CFDs. It is for this reason that CFD trading is restricted in many areas, including the United States. 

CFD scams usually involve fraudulent brokers. It can be difficult to determine which brokers are fraudulent and which are legitimate until the trader works with them. This is why the services of Trader Defender are so important. Potential traders who are uncertain about whether a CFD broker is legitimate or not can consult with our experts and benefit from our research and experience dealing with brokers and CFD scams.

What Does Legitimate CFD Trading Look Like?

Before you begin trading CFDs, it is important to do research. Those who wish to trade CFDs to look for resources online that will outline the benefits and drawbacks of CFD trading and will explain the process clearly. Many CFD scams take advantage of the fact that consumers are not well-informed on how CFD trading works, so having some knowledge will help you weed out scams. 

It is also essential to have a grasp on what is considered normal conditions for legitimate CFD trading. You can avoid CFD scams by ensuring your trading program includes: 

  • A licensed broker
  • Reasonable fees in line with industry standards
  • Clearly stated terms and conditions
  • Helpful customer service

The first thing to look for in a CFD broker is a solid license. Look for a broker with a license from the top-tier regulator. This assures oversight in case something goes wrong. If you are the target of a CFD scam from an unlicensed broker, you can appeal to legal authorities, but there are no regulators that can help you. Regulatory bodies have influence over licensees, but for those without licenses, there isn’t much they can do.

Are There Telltale Signs of CFD Scams?

Everything that is true about legitimate CFD brokers applies to CFD scams, but the opposite end. Telltale signs of CFD scams include:

  • Unregulated brokers
  • Unusual and High Fees
  • Lack of communication
  • No reliable contact information 

Any CFD brokers who are showing the above signs should be avoided. If you have already opened an account, try to get your money out. Unfortunately, though many CFD scam brokers will hold onto money and will not release funds to clients. This is where you should seek assistance.

What to Do If You Have Been Cheated by a CFD Scam

If you have tried to withdraw your money from a CFD scam but they are holding onto the funds,  it is essential to seek help. Trader Defender experts are experts who empower our clients with information and resources. We investigate, detect and report fraudulent brokers. Our professionals offer due diligence services and protect clients with our in-depth investigative reports. Schedule a consultation with us and we can guide you on the road to making successful trading decisions.