June 13, 2020
Stock market investing
What Is Pump-and-Dump and what are the stock market trading risks?
“Pump-and-dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. The perpetrators of this scheme already have an established position in the company’s stock and sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.
The Basics of Pump-and-Dump
Pump-and-dump schemes were traditionally done through cold calling. But with the advent of the internet, this illegal practice has become even more prevalent. Fraudsters post messages online enticing investors to buy a stock quickly, with claims to have inside information that a development will lead to an upswing in the share’s price. Once buyers jump in, the perpetrators sell their shares, causing the price to drop dramatically. New investors then lose their money.
These schemes usually target micro- and small-cap stocks, as they are the easiest to manipulate. Due to the small float of these types of stocks, it does not take a lot of new buyers to push a stock higher.”
The stock market is risky. Just looking at stock market live, stock market graph, stock market news, and trade stocks without due diligence is not a good idea. The stock market today graph, US stock market graph can ignore the fundamentals of stocks.
Lately, airline stocks, cruise stocks, and bankruptcy stocks have a lot of volatility. As there are specific risks associated with these stocks, simply buying these stocks ignoring their fundamentals is not stock investing, but pure speculation. Stocks can be speculative, but these types of investing carry a much greater risk to investors. Investing in stocks is risky, but speculation simply makes even bigger this risk.