The nuisance of fake trading apps

Many people, influenced by social media, friends, or relatives, believe that making money in the stock market is easy. This leads individuals to start trading and investing with unrealistic expectations. However, as Nithin says, “Stock markets are the toughest place in the world to make easy money in the long run”.

These unrealistic expectations also make people vulnerable to financial scams. There are numerous such scams, including phishing scams, fraudulent advisory services, scams targeting the elderly, and the classic pump-and-dump schemes.

At Zerodha, we have taken several steps to help prevent these scams. These measures include blocking illiquid option contracts, reporting any suspicious trades to the exchanges, alerting customers via Nudge when a stock is flagged as a risky penny stock during the buy order process, and raising awareness about these scams on social media.

However, we have recently encountered a new type of sophisticated scam: fake trading apps. These scams have become a significant problem, with thousands of people losing crores of their hard-earned money. To help raise awareness, we explain how these scams operate, why people are drawn into them, and how you can protect yourself from falling victim.

Check out this video on fake trading apps.

How do fake trading apps operate?

Fake trading apps are designed to take advantage of people’s trust. Victims often see small, convincing returns at first, which builds trust and encourages them to invest more money. These scams operate in an extremely effective manner. Here’s how it usually goes:

1. Initial contact

You receive a message on WhatsApp from a random person promising lucrative weekly profits in the stock market. The sender provides free trading study materials and invites you to join a WhatsApp group full of seemingly successful traders.

2. App download

The group admin convinces you to download an app that looks and feels legitimate. You are sceptical at first, but a polished app store page and fabricated positive reviews persuade you.

3. Initial investment

You are then asked to invest a minimum amount—say, ₹50,000. The admin walks you through the process, even providing his bank account details. You make the transfer, and the money shows up in your app.”

4. Fake success

After following the admin’s stock tips, you see a substantial increase in your investments—on paper, at least. This encourages you to invest even more, convinced that you can gain even bigger profits.

5. The scam revealed

When you attempt to withdraw your money, you’re asked to pay various fees—capital gains tax, platform fees, and even a commission to the “advisor.” After you’ve paid all these fees, you find that you still can’t withdraw your funds. The admin blocks you, and you realise that all your investments were fake.

How can you save yourself from such scams?

To ensure you do not fall victim to such scams, ensure the following:

1. Only download from trusted sources: Never download an app from outside official stores like Google Play or the Apple App Store. Even if the app is in the store, double-check the developer’s information.
2. Verify brokers: Make sure your broker is registered with SEBI. You can verify this on SEBI’s official website here.
3. Be sceptical of too-good-to-be-true offers: If someone guarantees high returns with minimal risk, it’s likely a scam.
4. Never transfer money to personal accounts. Always use the official app or website of a registered broker to transfer funds.
5. Report suspicious activity: If you suspect a scam, report it to the National Cyber Crime Reporting Portal or call their helpline at 1930.