What To Look For In AI Trading-Bot Scams

Today, traders can use legitimate AI-assisted trading bots to help spot subtle shifts in the market so fast, even J. Paul Getty's arbitrage-loving ghost must be impressed. Quantitative and "algo" traders might use the almighty algorithm to get even more out of their almighty dollar, but the hard work of coding bots, testing their strategies and patiently reaping rewards at modest rates of return, might not be enough for some. This opens the door for scammers, who offer traders AI trading bots that seem too good to be true, because they are.

Would you give a stranger $2,000 if they promised to pay you back next month, plus $1 million more? You might think chances are low that you'd agree to such a risky "investment," but AI trading bot scammers may find the odds in their favor. The FTC reports American consumers lost more than $4.6 billion to investment scams in 2023, a 21% increase since 2022. The FBI's 2023 Internet Crime Report, meanwhile, lists cryptocurrency investment fraud as the highest loss leader, with most victims falling in the age range of 30-49.

These staggering numbers are a good reminder that everyone is susceptible to fraud today. While some AI bot trading scams are obvious, others are more sophisticated. Whether you're trading stocks on the market or buying and selling crypto, here are some key scam factors to keep in mind when considering outsourcing your own trading intelligence to AI.

AI trading bots can monitor market shifts and execute conditional commands without the need for sleep or the weight of human emotion. Such purely logical (and programmable) AI trading can feel like magic, but it isn't guaranteed to lead to a pot of gold. There's no set-and-forget algorithm-based spell to get rich. Still, scammers sell their AI trading bots as such, so much so that the Commodity Futures Trading Commission titled its official customer advisory about this type of fraud "AI Won't Turn Trading Bots into Money Machines."

Scammers promise high profits ... fast, leaning into the hype surrounding artificial intelligence to entice their marks. However, any promise of zero-risk or guaranteed returns should ring alarm bells for investors, as should sky-high return promises, like, say, a promised 10% rate of return per day, or even month. Most of us think we can spot a sketchy promise when we hear one, but the disruptive mystique of AI could easily cloud good judgment, making overly optimistic traders susceptible to one of the biggest money scams of 2024.

In addition to promising the world, AI trading-bot scammers give themselves away by what they ask of traders, and how they ask for it. Scammers like to lurk in social media comments, direct messages, and chat servers like Discord and Telegram. There, they ask their targets for seemingly small one-off payments for access to trading bots that will supposedly make their buyers rich quickly. Yet, once the payment comes through, the scammers often vanish. Alternatively, this initial buy-in becomes part of a Ponzi-like scheme, as was the case with Cornelius Johannes Steynberg, who, in 2023, was ordered to pay $3.4 billion in damages after he swindled $1.7 billion in bitcoin from ~23,000 people, per the CFTC. (Speaking of, read about the biggest crypto scams to look out for in 2024.)

AI-bot scammers also tend to target individuals with just enough knowledge to get themselves in trouble. Cryptocurrency traders, for example, often fall in that 30-49 age range cited by the FBI as prime targets for trading bot scammers. These marks might have some knowledge of crypto, trading, and how AI-assisted automation works, but not a full grasp of the technology. If a scammer asks you to move your stock into their control or transfer your digital coin to an unfamiliar crypto exchange or broker, beware: Scammers could manipulate code to make withdrawals and deposits into their own accounts, hack your API code, or use other AI assistance to make your finances and personal data their own.

AI-bot trading scammers use every trick in the book to nab their prey — including AI's more mind-bending qualities. Some use ChatGPT and deepfake technology to present themselves as affiliates of legitimate companies, or even the genuine article. This fishy phishing technique can lend even more legitimacy to scammers posing behind a trusted face. For example, as reported by Netcraft, at least one investment scam faked an endorsement from OpenAI CEO Sam Altman, using the man's face and words to con investors into joining a scammy ChatGPT investment platform.

Some scammers simply lure their prey with seemingly-legit YouTube videos. These clips tout tantalizing winning strategies without really explaining the details, and their comments section are filled with testimonials from happy customers. Of course, these comments and accounts are usually created by the scammer themselves, under multiple user names. Scammers take advantage of clickbait ads, sponsored posts, and will likely be pushier on social media than legitimate bot operations.

The backtesting data these scammers present to support their wonder bots may look appealing, but never worth skipping your own research. Keep in mind that narrow historical data might make a bot look like more of a winner than it is. And, as every trader of stock and crypto knows, the past is not the future ... even if AI-enhanced trading makes the present feel absolutely futuristic.