Pump and Dump Penny Stock Schemes
Penny stocks are a great option for investors who want to make a high amount of money at high risk. Other options for investing are less risky, but will not yield the same results. As the saying goes, nothing ventured, nothing gained. But although penny stocks have an enormous capacity for profits, investing wisely is the key to investing lucratively.
One of the pitfalls to avoid is pump and dump schemes. These are essentially scams set up by the owner of a company with the goal to make money from a stock that would not otherwise be a good financial move. That is, a legitimate, non-scam company will attempt to make money by selling a good or service, and thereby boosting its own bottom line. Since the company itself increases in value, the stocks associated with it increase in value proportionally. But, since this process can take time, especially in a recession, some company owners have chosen the less ethical route.
A pump and dump scheme takes advantage of the fact that stock prices are only partially tied to the real value of a given company. Sometimes, a stock, or group of stocks or even the entire market will rise or fall purely because of speculation. War breaks out, investors think companies will be worth less money in the future, and so they sell, starting a self-fulfilling prophecy. Or a company puts out a press release anticipating future progress, and so investors buy in, raising the price of the stock.
Because a stock price has only some correlation to the actual value of a company, unethical company owners will sometimes put out a positive press release at the same time as they buy a huge amount of their own stock (possibly through a third party). This combination of news and seemingly increased demand sends the price up. Other investors get on board, but get burned when the company owners suddenly sell out, sending the price plummeting.
Category: Pump & Dump Daily
