Now, in the period of pervasive cryptocurrency hype, I simply cannot but share with you a time-tested cheat in share trading.
Pump-and-Dump is a standard scheme of stock exchange fraud. It boils down to an illegal promotion of a certain share type in the hope of getting easy money.
Everything goes — various rumors, e-mailings, catchy headlines in the press that have been paid for — all this should help the advertising campaign to reach its goal — make people rush and queue for the shares thus pushing up thier price.
It is not by chance that analysts and experts strongly recommend to stay away from the stock exchange instruments the aggressive marketing campaigns promote. These shares, after a short-term appreciation, will, most likely, burst like an overinflated bubble.
Pump-and-Dump — the scheme step by step
- Fraudsters slowly buy up the selected shares accumulating a considerable amount.
- They start e-mailings to the addresses of potential victims to persuade them to buy the shares while it is still not too late. The new buyers drive up the demand and consequently the share price increases.
- At this stage, the insiders continue to maintain the public interest in the shares, but start to slowly sell their holdings.
- Finally when the scheme has generated lots of money [when the scheme gets detected], the fraudsters quickly sell the remaining shares, their price hits the bottom with the unlucky traders losing their money.
It is noteworthy, that this type of fraud is found both in the conventional as well as the crypto markets.
I am sure if you will think carefully, you will come up with a couple of examples when this scheme is used in other life settings. This market is full of risks, it enables one to make a fortune or go broke. So, you should be extremely careful when engaging in speculation.