Trading sham and scam and how to spot them

Sham and scam are ubiquitous in the trading world.

The simplest case of scam you may encounter is when someone promises you something, takes your money, and refuses to deliver on his or her promises, either completely or partially. This is not uncommon, especially online, but much more often you are dealing with sham, that is, with products or services that are not what their description says they ought to be. The difference between scam and sham is sometimes subtle, and it is not the aim of this article to dwell on it. One can think of scam as a particularly outrageous case of sham, one that can have legal ramifications.

The majority of vendors hide the truth about their systems or courses in one way or another and some of them misrepresent things or plainly lie. Almost everyone falls for this at least once, some more often. I compiled here a list of more obvious signatures of sham so that you can protect yourself better from the people who are hell-bent to get your money or at least to waste your time with the products that are much less than genuine.

Yes, there are some good, honest and professional people in this field. I feature them or their work in the Recommended section of this site.

Here are some of the most common signs that you are dealing with sham:

1. hype ("the last system you will ever buy," "the best system on the market," etc.),
2. "trading secrets" to be revealed (if they are secrets why reveal them?),
3. self-contradiction that the buyer often does not want to dwell on,
4. anecdotal brokerage statements, sometimes clearly looking phony that are being passed as genuine or as a sample representative of longer term performance,
5. no track record whatsoever,
6. violations of the CFTC regulations (for instance, no standard disclaimer),
7. phony looking testimonials (everyone can write them, so testimonials count for nothing, but are routinely used to entice the gullible buyer),
8. a system or method that provides only the entry strategy while the exit is based on suggestions (this is always used to create optimal profits in hindsight, impossible to get in practice),
9. frequent modifications of the method or system, sometimes lacking consistency, usually to explain why it did not work well recently (happens often with discretional methods),
10. the price of a wonder product is not revealed until you provide your contact information such as a phone number or address,
11. the track record is not revealed until you provide your email address,
12. a vendor does not identify himself completely, but instead prefers to be known as "Joe S., a veteran trader of 10 years" or something like that,
13. things that look too good to be true (for instance, a 99% winning rate!) without any evidence supporting them,
14. claims of thousands of dollars to be made (a day!) with a vendor's system without even a shred of evidence for this,
15. a cheesy looking website or simply just a single page.

I will keep returning to this subject to illustrate it with very concrete examples of sham I have come across during my trading career.