Along with the growth of the crypto universe and the increasing popularity of automated tools, such as trading bots, investors are always looking for ways to maximize profits efficiently, quickly and without much effort.
These bots are programs designed to automatically perform trades based on parameters set by the user or by certain platforms. However, this strategy is not all sunshine and rainbows: unfortunately, scams involving trading bots are also on the rise.
In this article, we will explore how investors can identify crypto trading bot scams, how to avoid falling for these schemes, and what steps can be taken to protect not only their investments but also those of other investors.
What are trading bot scams?
A trading bot scam can be defined as a situation where scammers create fake or ineffective trading bots to deceive investors. The bot is promoted as an automated tool that promises high and fast returns, often without the need for much effort on the part of the investor. However, instead of generating profits, these bots often generate large losses or simply disappear with the invested money.
The idea is that the bot would make transactions for investors, looking at automated patterns that would make the best possible decisions. Many automations are happening nowadays, bringing us time savings and interesting results in everyday tasks, it's true. But it's important to pay attention to very clear signs that all this goodness could, in the end, be just a scam.
Scammers may convince users to pay subscription fees or purchase expensive software packages by claiming that these bots are “guaranteed” to bring in profits – and falling for this is a common mistake. Another common form of scam is through bots that deliberately make bad trades, manipulating trades to drain investors’ funds. All of this is done with the help of some “dedicated” community that always seems interested in bringing in more people to be “helped” by the bot’s actions.
How to identify a scam with trading bots?
There are some warning signs that can help investors recognize when a trading bot might be a scam. Here are some of them:
1. Promises of guaranteed profits
No investment, whether in cryptocurrencies or any other market, can guarantee consistent or certain profits. If a trading bot is promising guaranteed returns, it’s a big red flag. Financial markets are volatile and even the most experienced traders face losses: if that tool were really that transformative, the biggest investors in the world would already be using it (or talking about it).
2. Bots that don’t offer transparency
If the bot doesn't allow you to see how it makes decisions or what parameters it relies on to make trades, be suspicious. Legitimate tools usually provide some transparency into the trading strategies used.
Bots that operate as a “black box” without explanations are usually fraudulent. It is usually in this limbo of lack of information that the ideal gap for a scam can lie.
3. Request for large initial deposits
Scammers often ask users to make large deposits before they can start using the bot. They claim that these funds are required to activate the software or that the bot only works with high amounts.
However, this is a trick to get the investor's money all at once. It is not that it is forbidden to demand a certain amount to enter, the largest investment funds in the world also demand this, but it is a question of observing whether that request is accompanied by some real justification or just empty answers.
4. Endorsement by celebrities or influencers
If you come across trading bots promoted by celebrities or influencers (especially those who don't have an obvious connection to the crypto market), be careful.
Many scammers pay these figures to promote their schemes, increasing the perception of legitimacy, but in reality, this may just be a deceptive marketing strategy - and in many cases, the celebrities or influencers may not even be aware that they were scams too.
5. Unregulated platforms
Scammers prefer to operate on unregulated platforms, where it is easier to deceive users. If the platform offering the trading bot does not have any type of license or regulation, run away immediately.
Regulated platforms must follow strict rules, which better protects investors. Regulation is not a restriction on transactions, but rather a set of rules for those in a market on both sides of the counter (of what offers alternatives and also of who can invest in them).
How to avoid falling for trading bot scams?
Now that we know how scams work and what the warning signs are, it is important to understand what steps you can take to protect yourself and avoid contact with these schemes.
Here are six tips that can help investors protect themselves from trading bot scams in the crypto market:
1. Research before investing
The first and most important tip is to always do your own research (DYOR). Before trusting any trading bot, check the reviews, comments from other users and the reputation of the platform.
Read the opinions of experienced traders and look for independent reports on how the bot works. Researching not only based on what is presented to you but also looking at people who already invest or have invested is essential.
2. Avoid promises of guaranteed profits
As mentioned earlier, guaranteed profits are a red flag, a very strong sign that something is wrong. It’s a lot like the promises of airdrop scams: if the handout is too good, you should be suspicious!
Trading bots can be useful tools for automating trading, but they cannot predict the future of the market. Avoid any service that promises certain gains because, with high odds, not only will that not happen, but you will end up losing your invested money.
3. Be wary of expensive packages and upfront fees
Legitimate trading bot platforms usually charge reasonable fees, and these fees are clearly stated on their websites. If you come across bots that require exorbitant sign-up fees or expensive software packages, be wary.
Because, think about it: if you are going to pay such a high amount to have access to something that automates transactions and seeks profit, the profit that you don't even know if you will have will probably go away only in fees, which makes that automation not even worth it.
4. Choose regulated platforms
Always choose regulated exchanges or platforms that offer trading bots. Platforms like Binance, for example, have strict security and user protection requirements. Additionally, they tend to list bots that have already been tested and approved.
It is a huge warning sign if you come across a platform that, in addition to not finding much information about how it works, you also find that it is on an exchange whose reliability you have no idea about.
5. Check code transparency
Choose trading bots that make their source code available for verification. This allows the community and independent developers to examine the code for scams or vulnerabilities.
Open-source bots tend to be more reliable because they can be audited by anyone. If you can find bots that have been externally audited, you can be even more reliable. Also, remember to use platforms that offer security measures, such as two-factor authentication (2FA), and have strict anti-fraud policies.
6. Beware of pyramid schemes disguised as bots
Some scammers use trading bots as a front for pyramid schemes. If you notice that the main source of profit seems to be from new entrants, rather than actual trading, be suspicious immediately. Pyramid schemes inevitably collapse.
A very strong indication that a bot may be a pyramid scheme is to ask what the main source of returns is: if the answer is “the entry of new investors” or they just respond by changing the subject and avoiding the subject, immediately avoid this trap.
How to report and protect other investors?
It is possible to turn a personal lemon into collective lemonade: when you identify a trading bot scam, be sure to report the scheme to the exchange or platform where the bot is being promoted.
Serious exchanges take these reports seriously and can remove fraudulent bots from their lists, preventing other people from being harmed and losing money.
Another interesting way to help is to share your findings on specialized forums, such as Reddit or Telegram groups, to warn other investors about the scam.
Caution and attention avoid headaches!
Scams involving trading bots are a growing concern in the cryptocurrency market. However, when you follow the tips above and maintain a cautious attitude, you can avoid these pitfalls.
Researching before investing, being wary of promises of guaranteed profits and choosing regulated platforms are essential steps to protect your investments. And, of course, if you identify a scam, do not hesitate to alert other investors and report the case to the authorities and responsible platforms.
Do you know anyone who has experienced this complication? Tell us!
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Photo by Maxin, available on Freepik