The number of active demat accounts in the Indian stock market rose by nearly 31% from 2022 to 2023. What was once considered an investment category to be treaded carefully has now become the go-to option for several investors. While the increased adoption shows positivity, this comes with its share of risks, challenges and bad-actors looking to exploit vulnerabilities. Even with all the impeccable advancements in technology, fraudsters find ways to develop new and sophisticated tactics to target unsuspecting investors. To keep your hard-earned money safe, investors must educate themselves and stay informed at all times.
Use legitimate portal/app for Demat accounts
The first and most basic thing is to verify that you are using a legitimate website or app. Many fraudulent websites and apps exist online, masquerading as reputable platforms. To safeguard yourself, always scrutinise the website URL before disclosing any personal information. Additionally, download apps exclusively from the official Play Store and App Store.
Be aware of pump-and-dump scheme
Many fraudulent schemes are re-emerging in the digital age. Like the classic pump-and-dump scheme, where fraudsters artificially inflate a stock price before selling their shares. Social media platforms, chatrooms, and fake news articles are being used to spread misleading information and create a false sense of urgency around particular stocks. To prevent falling prey to this scheme, investors should conduct thorough research on companies, their financials, and management teams before investing. Scepticism is crucial when faced with unrealistic promises of guaranteed returns or quick riches.
Artificial intelligence challenge
Artificial intelligence has introduced new challenges, particularly with the advent of deepfakes and synthetic media. These technologies can create realistic videos or audio recordings of real people, potentially being used to manipulate the stock market. For example, a deepfake video of a CEO announcing a major breakthrough could lead to a stock price surge, followed by a swift sell-off by the fraudsters who created the video. To combat this, individuals should develop a critical eye, be wary of out-of-the-ordinary news from unknown sources, and cross-check information with official sources. Staying updated on AI technology and learning the warning signs of deepfake manipulation are also crucial. Focusing on reputable companies with a history of transparent communication can further protect investors.
Social engineering tactics, where fraudsters manipulate investors through emotional appeals or false claims, remain a major threat, especially with the rise of online investing.
Another strategy that has become increasingly common these days involves befriending individuals on social media platforms. The fraudsters then entice their new connections to invest money in the stock market through them, promising huge returns.
How to secure yourself from fraud
To protect against these tactics, investors should never share personal information, such as passwords or social security numbers, over email or phone. Being wary of unsolicited calls or emails and recognizing emotional appeals that create a sense of urgency can prevent hasty decisions. Enabling two-factor authentication adds an extra layer of security to online brokerage accounts, reducing the risk of unauthorized access.
Cybersecurity threats, including data breaches and hacking attempts, are a constant concern for all financial institutions. If a brokerage firm experiences a security breach, personal information and investment holdings could be compromised. To protect against this, choosing reputable brokerages with strong cybersecurity practices is essential. Regularly updating passwords, using strong and unique passwords can further enhance security. Vigilance against phishing attempts, such as avoiding suspicious links or attachments in emails, even those appearing to be from the brokerage firm, is crucial in maintaining cybersecurity.
The best defense against fraud is awareness. Educate yourself about the latest scams and prevention strategies. Regulatory bodies and financial institutions often issue warnings about emerging threats. Don’t hesitate to report any suspicious activity to your brokerage firm and relevant authorities like the cybercrime department or even SEBI, NSE, etc.
By staying informed and employing these strategies, investors can navigate the evolving landscape of the stock market with greater confidence. Remember, the key to protecting yourself is vigilance, research, and a healthy dose of skepticism. With knowledge as your weapon, you can outsmart fraudsters and achieve your financial goals, because in the end, this is stock market. If it looks too good to be true, it most likely isn’t.
(The article is authored by Sarvjeet Singh Virk, Co-founder & MD, Shoonya by Finvasia)
How to remain safe against frauds in Stock Market: Social media platforms, chatrooms, and fake news articles are being used to spread misleading information and create a false sense of urgency around particular stocks. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
