Unauthorized Trading

Unauthorized trading occurs when a security or other financial product is purchased or sold without the customer’s knowledge and approval.

Some firms let the investor sign an agreement which allows the broker to manage the account without prior authorization for each transaction. However, this requires the broker to follow strict rules, ensuring that the trades he or she makes are consistent with the risk profile and objectives that the investor has set.

When a fiduciary violates the investors trust and make trades that are not in line with the risk profile and objectives as well as not being approved by the investor, the trading is referred to as unauthorized. Unauthorized trading is found among traders, brokers, portfolio managers, risk managers, and other staff working in the financial market and is often seen in places that offer large incentives to cheat, such as companies that set commission goals yielding benefits for the person meeting the goals.

It is possible to demand a reversal of an unauthorized trade. However, people who engage in unauthorized trading usually take measures to avoid being detected and it may prove hard for the investor to notice the unauthorized trading.