A 澳洲幸运5官方开奖结果体彩网:pump-and-dump scam is the illegal act of an investor or group of investors promoting a stock they hold and selling once the stock price has risen following the surge in interest as a result of their endorsement. Here, we take a clos♏er look at how pump-and-dump schemes work and how to avoid them.

The Basics of a 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 some 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 澳洲幸运5官方开奖结果体彩网:small float of these types of stocks, it does not take a lot of new buyers to push a stock ♒higherও.

The stock is usually promoted as a "hot tip" or "the next big thing" with details of an upcoming news announcement that will "send the stock through the roof". The details of each individual pump-and-dump scam tend to be different but the scheme always boils down to a basic principle: shifting 澳洲幸运5官方开奖结果体彩网:supply and demand. Pump-and-dump scams tend to only work on small and 澳洲幸运5官方开奖结果体彩网:micro-cap stocks that are traded 澳洲幸运5官方开奖结果体彩网:over the counter. These companies tend to be highly illiquid and can have sharp price movements when volume increases. The group behind the scam increases the demand and trading volume in the stock and this new inflow of investors leads to a sharp rise in its price. Once the price rise has been formulated, the group will sell its position to make a large 澳洲幸运5官方开奖结果体彩网:short-term gain.

An Example of a Pump and Dump

During the summer months of the stock below, a pump-and-dump scheme was initiated by using a "wrong number" scam. A message was left on victims answering machines that talked of a hot stock tip and was constructed so that the victim would think that the message was an accident.

As seen in the above chart, the price rose from around $0.30 to nearly $1.00, a more than 200% increase in a one-week period. This drastic increase was seen along with an equally large increase in volume. The stock had seen an 澳洲幸运5官方开奖结果体彩网:average daily trading volume before the price increase of less than 250,000, but during the sca🌳m, the stock traded up to nearly one million shares on a number of trading days. The unsuspec🐓ting investors would have bought into the stock at around $1.00. As seen above, it fell to around $0.20, an 80% decline in value for those unfortunate investors.

The Bottom Line

Always keep this investment caveat in mind: "If it's too good to be true, it probably is." If someone you don't know gives you a stock tip, stop and think about why they would be so willing to give you such information. Do not think you can make a large and quick investment return because it's unlikely to happen. It's also vital that you do your own research about any investment. This should help you avoid being duped by such pump-and-dump scams.