A recent report has revealed that at least $2 billion worth of cryptocurrency has been lost in trading scams - a type of market manipulation where a fraudster is essentially trading with themselves - on decentralised crypto exchanges since 2020.

The proliferation of online trading platforms locally has opened up windows of opportunity for both novice and experienced traders to realise profitable returns. Unfortunately, the rise of online trading has been accompanied by an uptick in cybercrime that tricks people into parting with their money or personal information.

This is according to Roger Eskinazi, Managing Partner at Tickmill, who encourages existing and aspiring online traders to remain vigilant and to apply a healthy level of skepticism to any offer of financial reward that comes their way. “The axiom, ‘if it sounds too good to be true, it usually is,’ is the best way to capture how users should approach any financial decision.

He therefore encourages existing and aspiring online traders to remain vigilant and to apply a healthy level of skepticism to any offer of financial reward that comes their way. “The axiom, ‘if it sounds too good to be true, it usually is,’ is the best way to capture how users should approach any financial decision. The best ways to avoid being scammed are to conduct thorough due diligence, consult with someone who can provide professional opinion, and in general, to be very cautious of unsolicited offers.

In doing so, you can safely unlock the opportunities that legal, authorised online trading platforms can provide – to diversify your investment portfolio, access global markets, and work towards financial independence through informed and strategic trading decisions,” he adds.

How to sidestep Forex scams

One of the most common online trading scams involves the trade of forex. With the significant influx of independent brokers, South Africa is currently the continent’s leading destination for the trade of foreign currency. While this marks an increase in the number of favourable prospects available for legitimate trade, it has also opened up an array of vulnerabilities for cybercriminals to exploit.

In one example provided by CapeTalk, opportunistic forex scammers succeeded in defrauding South African traders of an average of R83 000 each during the national lockdown. In another incident reported by the Hawks, an Eastern Cape woman lost R110 000 after investing in a bogus forex scheme. In many of these unfortunate cases, the elderly, people who are not technologically savvy and those who facing financial difficulties become soft targets for fraudsters.

Urging South Africans to be extra vigilant around any deal involving forex, Eskinazi recommends checking that the respective platform holds the correct license before initiating any type of monetary arrangement or online trade. In South Africa, legitimate entities will be registered with the Financial Sector Conduct Authority and have a license number that is clearly displayed on their website and marketing material.

Other important signs of legitimacy to look out for include the physical address of the broker. Although online trading platforms are run digitally, legitimate brokers have an ethical obligation to provide users with their physical location in each of their respective territories, as a way of demonstrating their transparency and identifiability.

Crypto scams on the rise – and what to look out for

Another common online trading scam involves the trade of cryptocurrency. Bitcoin, which became a tradeable commodity in 2010, attracted a flurry of investor interest during its earlier years, with reports of large profits flooding the market. The value of Bitcoin rose steadily and experienced a range of fluctuations in price.

While experienced online traders have a keen understanding of market peaks and troughs and make decisions accordingly, many inexperienced traders and ordinary South Africans have been lured into scams involving cryptocurrency. Most recently, an alleged scheme selling Bitcoin mining machines over WhatsApp allegedly swindled around 4000 people out of R112 million.

‘Wash trades,’ where traders essentially trade with themselves fraudulently to deliberately over-inflate the value of a cryptocurrency with the aim of influencing other buyers and sellers to participate in the hype, is another pitfall to be aware of.

An effective way of mitigating this risk is to trade using a centralised exchange or liquidity provider – or platforms that are rely on them. In contrast, decentralised exchanges allow for peer-to-peer trade without the services of an intermediary. Although the latter may involve less regulatory and compliance issues, trading on a centralised exchange (CEX) generally offers better safety advantages. Many centralised exchanges operate under regulatory frameworks, which can provide a level of oversight and accountability.

Furthermore, with centralised exchanges, traders also benefit from more airtight security measures. For example, as Eskinazi explains: “Tickmill makes use of industry standard encryption algorithms for data encryption while maintaining robust systems to automatically back up our databases.”

Beware of trading programmes that require an upfront fee

‘Advance fee scams’ are also on the rise in South Africa. In these incidences, fraud victims are asked to pay a seemingly marginal fee upfront for their participation in an online trading programme, with the promise of receiving a significant return in future. In many of these cases, the narrative weaved around why the upfront fee needs to be paid has become increasingly intricate and convincing, only to see the criminal disappear once the fee is paid.

Last year, the Southern African Fraud Prevention Service (SAFPS) warned of an advance fee scam where perpetrators falsely presented themselves as representatives of the SAFPS and promised victims compensation for being defrauded in the past. Misrepresentation and/or redirect links to fake, duplicated websites of legitimate industry bodies are a common tactic used by criminals to construct a convincing appeal.

Stay informed. Trade safe.

As Eskinazi concludes, South Africans should “steer clear of unsolicited offers in general. Many scammers find their victims on social media and use information gathered from those platforms to gain the trust of unsuspecting victims. If you haven’t opted in for communication from a specific broker, you should be wary of anyone who randomly approaches you with an offer.

One of the biggest red flags to look out for is an unwarranted sense of urgency – scammers often pressure their victims into making rash or impulsive decisions with the prospect of some kind of threat or instant reward.

As a legitimate online trading platform, it is our duty to inform traders of any level of experience, that trading comes with its fair share or risk. Anyone positioning a trade as being risk-free or not advising their clients to manage risk appropriately is likely a scammer.”