Confidence to Avoid Scams Runs Low among Rookie Traders: Survey

Rookie traders, as much as 21.8 percent, are much less confident in avoiding online/social media scams when compared to experienced traders, a survey by Finance Magnates and FXStreet participated by 631 traders of all levels found. According to an industry expert, this "may be a good place to start" the trading journey.

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Inexperienced Traders Are Most Vulnerable

When it comes to traders with less than a year of experience, 21.8 percent of the respondents are “not confident” of avoiding fraud and scams. The figure drops to 11.5 percent for traders with between 7 and 8 years of experience and 12.7 percent for traders with more than 10 years of experience. Only 8.2 percent of traders with experience between 4 and 6 years are “not confident” of avoiding scams, while for traders with experience between 1 and 3 years, it is 11.9 percent.

The overall number of traders “not confident” of avoiding scams is 14.6 percent.

"It’s not surprising that rookie traders are wary of potential scams – however, that may be a good place to start," David Harvie, Saxo Australia's Head of Direct Sales, told Finance Magnates. "Being diligent with your research around your broker is the first step to being assured that you’ve made that first decision with confidence."

Online scams include phishing attacks, clones of legitimate platforms, bait with false marketing, and several other tactics. Such attacks skyrocketed with a growing demand for retail trading. The Australian financial market regulator took down nearly 3,500 websites indulged in scams and frauds since last June. The UK’s regulator published 2,286 scam warnings last year, setting a record.

Among the survey respondents, inexperienced traders dominated, with 32 percent of the total respondents having less than a year of trading experience and 31 percent having experience between 1 and 3 years. About 14 percent of the respondents had more than 10 years of trading experience.

"Rookie traders will often lack a nuanced understanding of market psychology, making them less adept at spotting scams that play on greed and fear," said Larry Zhong, the Founder and Personal Finance Expert at YieldAlley. "This deficiency stems from their limited experience with the breadth of legitimate versus fraudulent market signals, leading to an inability to distinguish between authentic opportunities and well-disguised traps."

Experienced Traders Are “Very Confident” to Avoid Scams

The survey found that 46.1 percent of traders with 7 to 10 years of experience were “very confident” in avoiding scams, followed by 45.6 percent from the group of traders with more than 10 years of experience. Among the rookie traders with less than a year of experience, only 37.6 percent are “very confident” that they can avoid online scams.

Furthermore, 40.6 percent of less than a year experienced traders are “somewhat confident” to avoid scams, again the least among all other trader groups. Regarding the middle ground, the figure is 48.5 percent for traders with experience between 4 and 6 years, the highest among all groups.

Mentioning the psychology of traders, Adam Koprucki, the Founder and CEO at Real World Investor, said: "Rookie traders are anxious to make money, so they are quick to hop on an opportunity without fully thinking through the proposition. Meanwhile, experienced traders usually have a book of business or strategy they're implementing, so they may pause a bit more before jumping into any 'too good to be true opportunities'."

Finance Magnates earlier reported that most traders encounter financial scams on Facebook, with 38 percent of the online scams appearing on social media. It is followed by Telegram with 34 percent and WhatsApp with 25 percent.