Market Stock: How to Spot Deceptive Trades in the Stock Market in 2023

 

Overview

The well-known market “pump and dump” scheme is one of the most widespread online scams. Here’s how it works: A corporation may

post a nice news release about its financial standing or a new product or innovation on its website. It’s possible for newsletters

that claim to offer unbiased advice to suddenly promote the company as the newest “hot” stock. You can be urged to buy the

stock immediately or to sell it before the price drops in chat rooms and on message boards. Alternatively, a radio or television

analyst might make a reference to the business.

Cold calling was once a common tactic in stock market scams, particularly in pump-and-dump schemes. However, with the rise of the internet and digital trading, these fraudulent activities have become even more prevalent, making it crucial for investors to remain vigilant.

How Pump-and-Dump Schemes Work

Online scammers exploit market psychology by posting false claims about a particular stock’s potential, urging investors to buy immediately. These fraudsters often claim to have inside information about an upcoming event—such as a major acquisition, new product launch, or a breakthrough in technology—that will supposedly cause the stock’s price to surge. Once unsuspecting investors start buying, the perpetrators quickly sell their shares at an inflated price, leading to a sharp decline in the stock’s value. This leaves new investors with significant losses as the stock price crashes.

Why Small-Cap Stocks Are Easy Targets

The easiest stocks to manipulate in these schemes are micro-cap and small-cap stocks, which have low market capitalization and limited liquidity. These stocks often have:

• Low trading volumes – Making it easier for fraudsters to artificially inflate prices.

• Limited public information – Investors often rely on social media, online forums, or promotional materials rather than solid financial reports.

• High price volatility – Even a small surge in demand can cause significant price swings.

Because these stocks have a small float (limited shares available for trading), it doesn’t take many new buyers to drive prices up. Once fraudsters start selling their holdings, the stock price collapses, causing unsuspecting investors to suffer substantial losses.

Real-World Examples of Pump-and-Dump Schemes

Several infamous market manipulation cases have targeted low-cap stocks in various stock markets, including the Philippine Stock Exchange (PSE) and global stock markets:

1. Wolf of Wall Street Scandal – Jordan Belfort and his firm Stratton Oakmont manipulated small-cap stocks by aggressively marketing them to retail investors before dumping them at high prices.

2. Cryptocurrency Pump-and-Dump Schemes – Many low-cap digital currencies have been artificially inflated through social media hype before experiencing massive price crashes.

3. Local Stock Manipulations – In the Philippine market, certain penny stocks have been targeted by fraudsters who spread misleading information to artificially drive up stock prices before offloading their shares.

How to Avoid Falling for Market Scams

To protect yourself from pump-and-dump schemes and other forms of stock market manipulation, consider these strategies:

• Do Your Research – Always analyze a stock’s financial statements, earnings reports, and business fundamentals before investing. Reliable sources include PSE disclosures, company reports, and financial news platforms.

• Beware of Online Hype – Be cautious of stock tips from social media, message boards, or online forums, as many may be part of manipulative marketing efforts.

• Check Trading Volume and Price Movements – Unusual spikes in price and volume without any fundamental news are red flags of possible manipulation.

• Avoid Stocks with Limited Information – Fraudsters often target thinly traded stocks with little to no public data, making it difficult for investors to assess their true value.

• Be Skeptical of “Too Good to Be True” Promises – Any claim of guaranteed high returns should raise suspicion, as legitimate investments always carry risks.

Conclusion

Stock market scams like pump-and-dump schemes continue to exploit retail investors, particularly in the micro-cap and small-cap stock sector. By understanding how these schemes work and practicing due diligence, investors can avoid falling victim to manipulative stock promotions and safeguard their portfolios. The best defense against stock market fraud is education, research, and a disciplined approach to investing.

Because it is simpler to manipulate a market stock when it is little to no information accessible about the company, fraudsters

typically utilize this scheme with small, thinly traded companies. Always research potential market investments before making one

to avoid scams:

• Consider the Source

  Until you can independently verify an offer’s validity, believe it is a fraud when you encounter it on the Internet. Additionally,

  keep in mind that the individuals selling the stock may be hired shills or corporate insiders who stand to make a tidy profit if you trade.

• Find Out Where the Stock Trades

  The Philippine Stock Exchange, Inc.’s or a national exchange’s listing standards cannot often be met by many of the

  smallest and thinly traded stocks. Instead, they trade on the “over-the-counter” market and are quoted on OTC platforms like the Pink Sheets or the OTC Bulletin Board. The majority of the time, stocks that trade on the OTC market are the riskiest and most vulnerable to manipulation.

• Independently Verify Claims

  Grandiose statements about upcoming market product developments, lucrative contracts, or the company’s financial

  stability are simple for a business to make or for its promoters to make. However, be sure you’ve independently checked such claims before investing.

• Research the Opportunity

  Always request the prospectus or most recent market financial statements and carefully examine them. Always verify with

  your state’s securities authority as some tiny businesses are not required to register their securities offerings. It’s a positive indicator if you receive intelligent responses that are supported by statistics, testimonies, research, or other reliable sources of information. Be quite suspicious if you only receive hot air and lofty promises. Investigate an investing offer online if you have any doubts. Many other investors are frequently happy to share their positive or negative experiences with others. Scammers and fraudsters frequently come to light, and the internet aids in swift communication.

• There’s no Procedure for Verification

  To make sure that all of the users on the platform are authentic, regulators insist that every new user who registers with an

  online trading platform go through a rigorous verification process. If there isn’t a verification procedure, it’s probably a hoax. It’s crucial to be vigilant and review other sites that are similar to see where the gaps are or if there are any differences in copy or methods because some scammers might develop their own bogus verification process. Keep in mind that any respectable institution will confirm its own credentials and be able to demonstrate that it belongs to the organization it claims to represent. They ought to be able to identify themselves if you ask them questions. It’s very likely a scam if you hear a prerecorded message, especially if it contains a threat or warning.

• Avoid High-Pressure Pitches

  Don’t fall for the claim that you’ll miss out on a “once-in-a-lifetime” opportunity to make great money if you don’t move

  immediately. Beware of promoters who rush you to buy before you have a chance to think about and thoroughly study the so-called “opportunity.”

• Always Have Doubts

  Ask yourself, “Why me?” whenever a stranger offers you a hot stock recommendation. What makes this stranger tip me

  off? How would a trade benefit him or her? Undoubtedly, there are investment methods and chances that provide significant potential gains. And it’s okay to pursue those if you’re aware of the dangers and they fit well with your financial objectives. However, you should examine the possibility much more seriously if it makes a guarantee of astronomical returns with little to no risk.

• Be Wary of the Most Popular Hot Investment

  It seems like there is always some trendy investment trend that keeps rising as more and more people join.

  Stocksassociated with marijuana, cryptocurrencies like Bitcoin, and shorted stocks are some recent instances (such as GameStop). On these kinds of investments, there are frequently people who do make a sizable profit. But they frequently enter the game quite early and are relatively fortunate. By the time the majority of investors learn about the incredible profits in the newest trending investment, it has typically turned into a bubble, which typically has a poor outcome.

If someone you don’t know gives you a stock tip, pause and consider why they would be so willing to give you such knowledge.

Always keep this investing adage in mind: “If it sounds too good to be true, it probably is.” It is doubtful that you will experience a

substantial and rapid return on your market investment. Additionally, it’s crucial that you study any investment on your own. This

ought to assist you in avoiding falling victim to such pump-and-dump frauds.

 

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