What is ‘pump and dump’ scam
The way to invest in the stock market has become easier. By the way, scams are also happening through it. On the day, Sebi’s stick goes on big companies. Recently, the case of Jane Street, a company with a big global algo trading of America, was in a lot of headlines. The company had defrauded thousands of crores of rupees to investors under the guise of future and options. Similarly, a pump and dump scheme runs in the market, through which big investors suck the hard earned money of retail investors. Let us tell you about this pump and dump scheme with details.
The pump and dump system in the market works for a long time. This is a financial fraud of a way. In this, scammers buy and increase the price of a particular share. After that, when the price increases, they sell their shares out of that company, after which the company’s shares suddenly become a bust. This process is called pump and dump in the language of the market.
Pump and dump scam
In the pump and dump, big investors first choose a penny stock or a low price stock. Then they buy a lot of shares of that company in a lot of quantity. After this, he preach a lot on social media platforms like Intagram, Facebook, after which people slowly know about that stock and start investing. This increases the value of the stock and as soon as the value goes high, big investors withdraw their money and the share becomes sudden. Due to this, those who are small investors suffer a lot.
For example, we can understand it in such a way that there is a company whose price of one share is Rs 2 rupees 5 rupees. So those who pump and dump buy millions of shares of that company. They start promoting it, due to which retail investment starts investing in it. By the shares of 2 rupees, a lot of investors come in it. After that, big investors, ie scammers, withdraw their money from the share, which reduces the valuation of the company and the shares suddenly become a bust. In such a situation, the hard earnings of small retail investors who want to earn from the stock market are submerged.