Beware of the Stock Market

Discussion in 'Economics' started by Kanan, May 13, 2007.

  1. Kanan


    I was watching a Documentary about the Share Market a couple of days ago. The documentary mentioned fraud and illegal activities which occasionally occurred in the stock market. One method highlighted by the documentary was a method which involves artificially inflating the value of a stock through misleading promotions. This is called the “PUMP and DUMP” scheme.

    With the ‘pump and dump’ scheme, a group of people will buy a large amount of shares at a low price. Once the shares have been purchased, they will then begin falsely promoting the share price on the internet, through emails (spam), and other means. For example, the email they distribute may give a list of reasons (all phony) why you should purchase that particular share, and the company’s plans for the future. This entices people to purchase shares in the company. This will increase demand for the shares, and as demand increases, so too does the price of the shares (Demand increases  Price increases). The share price will continue to increase as long as demand for the shares continued to increase. Once the shares reach a certain price, the group involved in this scheme will begin to sell their holdings (shares), creating in a massive profit. Since the group no longer holds shares in the company, they will stop sending promotional emails and information about the company. After a while, the new owners of the shares (the people who purchased the shares at the higher prices) will realise they have been victims of a scam, and that the company’s shares are extremely overpriced. This then causes a sudden fall in the share price of the company, resulting in losses for most of the new investors.

    As an investor, you must be extremely careful when buying shares. It is very important to be patient and conduct thorough research before purchasing any shares.

    If you know any other types of stock market fraud which investors should be aware of, please provide some details about them.

    I hope that this thread will make you aware of some of the fraudulent activities involved with the share market.

    Any other comments, opinions or thoughts are welcome. Please provide you views on this topic.

    By: Kanan Zamanzadeh
  2. Rocko1


  3. Kanan


    Sorry, I didnt realise I posted the same thread twice. I thought that the first one didnt post, so I made another one.

    I tried to delete this one, but only the administrator has permission to do that.