12 Steps to Avoid Fraud in the Stock Market

Any system which has been put in place by humans is bound to have some flaws. The stock market, an area which is fuelled by trader’s ambition to make more and more profits, is one such system. Thus, fraud in the stock market, whether small or large in scale, is something every trader must be prepared to deal with.

However, taking action after the fact is inadvisable when it comes to trading. Fraud in the stock market can lead to huge financial ramifications for the victim, which could negatively impact everything in their life. Therefore, we bring to you 12 steps which you can take as a trader to avoid falling victim to fraud in the stock market.

After all, prevention is better than cure.

Steps to Prevent Fraud in the Stock Market

1. Never entrust your funds with unregistered stock brokers
2. Be aware that brokers or their associates are not authorised to offer fixed/guaranteed/regular returns/capital protection on your investment or enter into any loan agreement with you to pay interest on the funds offered by you
3. Any documents which require you to fill in your details should only be done so by you, and not by a second or third party.
4. Update your email ID and Phone number in the Exchange records as and when you change them
5. Any discrepancy between verification emails/messages and Contract notes/Statements should be reported immediately
6. Based on the frequency of accounts settlement opted for, make sure that your broker settles your account and sends statement of accounts within the stipulated time frame
7. Verify that your Consolidated Accounts Statement (CAS) are consistent with your transactions regularly to avoid fraud in the stock market
8. Pay-out of funds/securities and Contract Notes should be received by you within 24 hours. Post 24 hours could be a sign of fraud in the stock market
9. Never keep funds idle with the Stock Broker.
10. Keep in mind that brokers can take securities belonging to clients only for the settlement of securities sold by the client, and for no other purpose. If your broker asks to keep securities as collateral, it is a clear sign of fraud in the stock market
11. While not a mandatory requirement, to avoid fraud in the stock market, a trader should clearly define the limits and timeframe of the Power of Attorney they assign to their broker
12. Never share login details of your registered trading account with anyone

What Recourse Can You Take in Case of Fraud in the Stock Market?

While the aforementioned steps are effective in preventing fraud in the stock market, they are not entirely foolproof. Then, what can one do in case fraud has already occurred?

Should any trader find themselves a victim of fraud in the stock market, they can directly approach and file a complaint with the Securities and Exchange Board of India (SEBI), or any of the stock exchanges which fall under its purview. For this purpose, SEBI has established a dedicated complaint cell called the SEBI Complaint Redress System (SCORES).

We hope that through this article our readers will be more informed and thoroughly prepared to tackle corruption in the Indian stock market, as well as help others in a similar situation. If you wish to learn about the functions and powers of the institutions mentioned, and the various terms used in this article in greater detail, you will find the related articles on the Booming Bulls Academy blog.

If you want to know more about Risk Management & Intraday Trading Strategies you can refer to our previous blog on

Importance Of Risk Management In Trading and 10 Best Intraday Trading Strategies.

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Happy learning!