Pump and dump scams are a type of fraudulent activity commonly associated with the stock market. The scam involves promoters buying large amounts of stock in a particular company and then artificially inflating the value of the stock through a series of false and misleading statements. Once the value has been inflated, the promoters quickly sell their stock at a profit, leaving unsuspecting investors holding a bag of worthless shares.
To spot a pump and dump scam, investors should be aware of any stock that has seen a sudden and unexplained increase in price. Promoters often use online message boards, emails, and other forms of communication to spread false information and pump up the stock price. If an investor sees a dramatic rise in price, they should be wary.
Investors should also be aware of any stock that is heavily traded by a small group of people. If a single group of people is trading a large number of shares, it could be a sign of a pump and dump scam.
Finally, investors should be wary of any stock that is heavily promoted by promoters. If someone is offering a hot stock tip, it could be a sign of a pump and dump scam.
Pump and dump scams are unfortunately common, but investors can avoid them by taking the time to research any stock before investing. By doing so, investors can protect themselves from becoming victims of a pump and dump scam.
