7 Stock Broker Frauds That Every Trader Should Stay Vigilant About

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Misconduct by a stockbroker is a real problem. Not that all brokers are mischievous or fraudulent, but being able to identify the ones can help you save your hard-earned money.

Thankfully, some clear signs can help you identify stockbroker frauds.

Here are seven frauds that you should vigilantly observe.

Converting Funds

This is one of the most common types of stockbroker fraud and can be the easiest to see coming.

When a broker you place your trust in takes money directly from your trading account for their personal use, the fraud is identified as conversion of funds.

Indeed, it is the most blatant act that is quite similar to direct theft.

Misrepresentation of Facts

A stockbroker is usually obliged to be entirely transparent to their clients. It means that they shouldn’t hide or lie about anything that concerns your trading account. Or even your trade.

Although this fraud is not easy to identify, it could take months or even years before you realize it. Having a stockbroker fraud lawyer, in such cases, can help you vindicate your agent. And, therefore, receive justified compensation for their fraudulent activities.

Unauthorized Trading

Ideally, a stockbroker should ask you before using your funds for investments. In case they deny their responsibility, they might be committing unauthorized trading.

Now, this is something that can be avoided right from the start.

For example, you can use a non-discretionary brokerage account for all your transactions. It should deny any access for the broker to your trading account without your permission.

Over-Concentrating Your Investments

You must have heard the saying – “don’t put all your eggs into one basket.” Well, it is especially true for trading in stocks.

If your broker suggests you invest all your funds into a single or a small number of funds, be alarmed! There is undoubtedly something wrong with this scenario.

Ideally, a good stockbroker should be able to help you diversify your portfolio.

Excessive Trading

Another tell-tale sign that your broker might be cheating on you is if they ask you to trade your stocks too often.

Since most of the brokers usually work on commission, more trading would mean more money for them. However, it might not mean the same to you.

So, suppose you believe that your broker is pushing you around to trade more frequently. In that case, you should consult with your lawyer immediately.

Suggesting Risky Investments

It is indeed an umbrella term that can cover many other malpractices, including those mentioned above.

If your broker suggests you make an investment that is too risky, they might be cheating on you.

Perhaps, they might not be considering your overall portfolio. Or maybe, they own a share of the stock or bond in question. Thereby leading to conflicting opinions and interests.


Sometimes, the broker might not be trying to cheat you intentionally. It could be either because your account does not intrigue them, or they have better clients over you.

In any case, their negligence can cause you to lose your valuable investment, which is against their code of conduct.

As already mentioned, they are sworn to advise you for the betterment of your portfolio. And if they fail to do so, they are at fault.

Summing It Up…

When it comes to trading in the share market, blindly trusting your broker can be a risky idea. It is better to involve someone who can help you steer clear of fraudulent investment advice.

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