Trading bot scams: How to identify and avoid fake bots

What are trading bot scams?

Trading bot scams are a type of fraud where scammers sell access to automated trading bots, often using high-pressure tactics and promises of guaranteed returns. In reality, these bots either don’t work at all or are designed to manipulate trading results, leading investors to lose money. Some scams involve poorly coded bots that execute bad trades, while others are more elaborate, with entire fake platforms that disappear overnight, taking investors' funds with them. The result is the same — victims of trading bot scams end up losing money instead of gaining a trading advantage.

Are trading bots legitimate?

Properly designed trading bots are legitimate tools for cryptocurrency trading, forex trading, and other markets. These bots react faster than any human and can execute trades based on predefined algorithms. Legitimate trading bots can greatly refine trading strategies. They work 24/7 and help traders avoid missing market opportunities. However, their success depends on the quality of the algorithm, data, and market conditions, making them not entirely foolproof.

However, not all trading bots are safe. Plenty of bad actors are using trading bot scams to deceive investors. It’s important for traders to learn how these scams work so they recognize the signs. 

How do trading bot scams work?

Trading bot scams often follow a predictable pattern designed to deceive investors and steal their funds. Scammers lure individuals with promises of effortless profits and advanced trading strategies, but in reality, the bots they offer are either non-functional or rigged to fail. The process usually goes like this:

1. 1.Sign-up. Scammers entice investors with promises of easy, risk-free profits, leading them to sign up on the platform.
2. 2.Bot doesn’t work. Once the bot is activated, it either doesn’t trade at all or makes poor, losing trades that drain the investor’s account.
3. 3.Manipulated results. Scammers use fake testimonials and manipulate data to create the illusion of successful trades and profits.
4. 4.Rug pull. After the investor has made a significant deposit, the scammers disappear with the funds, leaving the platform and the investor’s money gone.

Common types of trading bot scams

Several different types of trading bot scams exist, and it’s important to be able to recognize them. Let’s break down the most common ones.

Fake AI-powered bots

For many new investors, it’s tough not to be seduced by the promise of an AI-powered bot that will use advanced machine learning algorithms to generate hefty profits. However, these fake trading bots either lose the trader’s money or simply allow the scammer to walk away with their funds.

Pump-and-dump bots

In crypto trading bot scams like illegal pump-and-dump schemes, a scammer promotes a cryptocurrency and artificially inflates its price. They sell once the price has peaked before others can react. Trading bots are hugely helpful in a pump-and-dump scam since they can react faster than humans and buy and sell at the right times. Traders looking for trading bots might unknowingly be pulled into one of these scams, and the funds could be used for crime.

Subscription-based scams

This type of scam is defined by the way traders pay for their trading bots. Scammers will offer access to trading bots that they promise will generate huge returns for some sort of recurring fee. The bots then either perform poorly and generate minimal profits or lose a significant amount for traders while the scammers continue to collect subscription fees.

Unauthorized API access and wallet-draining bots

In crypto trading bot scams like this, a trader gives API access to a bot, and the scammers gain access to the investor’s cryptocurrency. Then, the scammers drain the investor’s wallet, and the platform disappears.

How to identify a trading bot scam

If you’re a trader looking to invest in trading bots, it’s crucial that you pay attention and look for red flags and signs of a scam. If you’re taken in by this type of scam, you could lose substantial funds. But a little investigation will help you to avoid becoming a victim. Follow these steps to identify and prevent trading bot scams:

1. Look for signs of a fake trading bot

A healthy dose of common sense will help you see the signs of a trading bot scam. As with phishing emails, poor spelling and grammar are red flags. Other warning signs include high-pressure tactics, a lack of online reviews, and fake team profiles using stock photos. Scammers often operate on poorly designed websites and make “too good to be true” promises like zero risk and guaranteed returns — claims that reputable platforms never make.

2. Research and verify a trading bot

Before entrusting a bot with access to your finances, take a few steps to verify its legitimacy. Check if the company is properly registered and if it has a verifiable track record of performance. Look for independent audits that confirm the bot’s reliability. Compare reviews across multiple sources rather than relying solely on testimonials from the platform itself. Be wary of high-pressure sales tactics, such as limited-time deals, which scammers use to push investors into quick decisions.

3. Analyze reviews for red flags

Just because a platform has great reviews doesn’t mean it is genuine, because some scammers generate fake reviews to create the illusion of success. It’s also suspicious if the reviews are all positive. If something seems too good to be true, it probably is.

How to protect yourself from trading bot scams

You may be rethinking your plan to invest in trading bots at this point. However, you can take a few steps to keep yourself safe from scams:

1. 1.Never grant full API access to a trading bot. Instead, use API keys with limited permissions.
2. 2.Use a dedicated trading account with limited funds. Don’t give bots access to all of your investing funds. Set up an account with a small amount of funds available to trade to minimize risk.
3. 3.Secure your account and personal data. Create strong passwords for all your accounts and enable two-factor authentication to add an extra layer of protection. NordVPN’s Threat Protection Pro™ can also help protect you by actively identifying and blocking access to malicious domains.
4. 4.Avoid bots that require large upfront deposits. It is suspicious when treading bots require large upfront deposits, and you should avoid them.
5. 5.Be cautious with referral or MLM-based bots. Some referral or multi-level marketing (MLM) based bots are legitimate, but others are illegal pyramid schemes.
6. 6.Educate yourself. Keep up with industry news and join online forums to stay ahead of the latest scams. If you stay informed about the potential risks and warning signs, you’ll be better prepared to avoid scams.