How do I protect myself against fraud when shopping online?

Action Fraud are the national fraud and cyber crime investigation agency, they have comprehensive information on their website which can help you to stay safe online.

Protect yourself against shopping and auction fraud

Make sure you understand how the website’s feedback function works. Feedback will give you useful information about recent transactions other buyers have made.
Check the item's description carefully – ask the seller questions if you’re not sure of something.
Beware of people offering you a deal below the current bid or reserve price, especially if they contact you direct. Remember, if an offer sounds too good to be true, then it probably is.
Be extremely careful when buying things from people with little or no selling history.
Be aware of phishing emails that look like they come from the online auction or payment site you’re registered with, asking you to update your account details or re-enter them because your account has been suspended.
Check the URL in the web browser. A tactic often used by fraudsters is to change the address very slightly (if they’re spoofing an eBay site, for instance, they may have an address such as ‘. . . @ebayz.com’ whereas the real site is ‘. . . @ebay.com’)
Read the terms and conditions carefully, including those relating to any dispute resolution procedures the site offers.
If you bid for an item unsuccessfully, don’t be tempted to trade off-site if another seller approaches you with a similar item.

As a buyer you should:

Try to avoid paying by money transfers - they aren’t secure.
Be careful when using direct banking transactions to pay for goods. Make sure transactions are secure.
Don’t send confidential personal or financial information by email.
Use an online payment option such as PayPal, which helps to protect you.

As a seller you should:

Be wary of accepting payment by cheque. Even though it may clear, you are still liable if the cheque is forged or stolen.
Don’t accept a cheque for a higher amount and refund the difference. This is a common fraud that only comes to light when the buyers’ cheque turns out to be stolen or forged.