When you open a trading account for the first time with a broker, you are given a lengthy application and an agreement booklet, which you as investor are required to sign. And mostly, very few investors go through the fine print. The agreement between you and the broker is most likely to be skewed towards the broker. Thus, one must ensure that she reads it thoroughly before signing it, as it could otherwise lead to major problems.
While going through the form and agreement, ensure that you are not giving authority to the broker or sub-broker for placing trades on your behalf. Pay close attention to the power of attorney (PoA) section. Once you sign the PoA, it allows the broker to transact on your behalf. Some investors also give a PoA to move funds from their bank accounts. This can be costly if the brokerage firm decides to execute unauthorised trades from their accounts.
One should also ensure that the broker or an authorised representative signs on all the pages of the agreement. Also, the agreement must be signed by witnesses, giving their name and address.
To avoid being duped, insist on a contract note for each and every transaction and verify details in the contract note. In case of any doubt, crosscheck the details of your trade with the details on the exchange’s website. Insist on a bill for every settlement.
Source: Economic Times