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Learn more about pump and dump scams
In the investing world, there are many different scams that you must be aware of. Some of them are easy to spot and others can catch you off guard. One of those scams is pump and dump fraud which is difficult to spot.
Pump-and-dump scams are when influencers, or people who invest, create hype around a stock or cryptocurrency by fake claims or exaggerated statements. The reason why is that people become interested in stocks or cryptocurrency, resulting in more people investing in it. Once the value has increased significantly, they will sell their shares, earning a large amount of money.
Pump and Dump fraud has been around for a very long time, with its origins coming from cold calling. Now, the internet has made pump-and-dump scams far more popular because more people are investing their money.
Forums, such as Reddit, are a common place for pump-and-dump scams. They can also occur on platforms such as Twitter and Facebook. Spotting these types of scams is difficult and can’t be avoided.
People will also create videos to temp people into buying certain stocks and cryptocurrencies. TikTok is a popular platform for pump-and-dump fraud as people build hype around stocks to get more people to invest and increase the value of that investment.
Prevention
How to spot pump and dump scams
How to spot pump and dump scams+
When investing, you must be aware of the different types of trading scams. With it being easier to invest your money, it is also easier to get scammed. Pump and dump fraud comes in many forms and some are easy to spot.
If someone you do not know has reached out to you to invest in a stock or cryptocurrency, this could be a pump-and-dump fraud. This could be through private messages or someone who has replied to a post of yours in a forum.
Something else you must be wary of is false promises with pump-and-dump scams. People will promise huge returns and insist you must invest as soon as possible to “maximise your profits”. It is a common tactic from a pump-and-dump scammer.
Other types of pump and dump scams+
Although forums and social media platforms are the more commonplace for these types of scams, they can also occur on trading platforms. These criminals will heavily invest in a stock that is low in value and once the value has increased significantly, people will notice it. That will attract other investors to invest their money into the stock, gradually increasing the price. Once the investment has increased enough, the perpetrator will cash out on their shares.
Is a pump and dump scam illegal?+
Yes, pump and dump scams are illegal as they take advantage of other people’s money. The fraudster will promote the stock or crypto coin, even though there is no proof it will be a successful investment. That fraudster will also invest a considerable amount into the investment, changing its value. This attracts more investors to invest which will continue to increase the value. Once the value increases, the fraudster will cash out on their investment, leading to the value dropping and them leaving with the profit. Usually, this would need a large investment from multiple fraudsters so they can generate enough profit from their investment.
How long does a pump and dump scam last?+
Usually, a pump and dump scam will only last a week however, some can be longer if the fraudster(s) wants to increase their profits even further. However, the longer they leave it, the more likely other investors will become aware that this is a scam and will cash out before they lose too much money.
How to not become a victim of pump and dump fraud?+
As mentioned previously, a pump and dump scam will usually occur within a week. A good way to identify pump and dump fraud is by looking at how long it has been increasing in value. If it has been over a couple of weeks or a month, you can be confident it is a scam. Additionally, another way to check the legitimacy of a stock/crypto coin increasing is by reading the news and seeing if credible sources report anything positive about the investment. If you struggle to find anything positive, it is likely a pump and dump scam.
How to avoid a crypto pump and dump scheme?+
Crypto pump and dump schemes can be very tempting for a crypto investor who is a beginner. However, there are a few things you can do to avoid this type of crypto fraud. Some of these things include:
Before investing in any crypto coin, you must conduct sufficient due diligence before you invest. This includes researching the company’s background, where they see themselves shortly, market capitalization and finally, trade volume. Researching news articles about the company/ crypto is also a great way to ensure it is legitimate.
Analyse the volume and price movements of the crypto coin on a more technical scale. If there are moments when there is a significant increase in both volume and price, then large drops straight after, you know something isn’t right.
Don’t invest in a crypto coin because you have a fear of missing out. If you find yourself investing in both stocks and crypto coins because others are doing it, you should not invest your money. Conduct your own research to see whether it is a valuable investment.Monitoring news and market trends is essential when you are investing. Doing this will help you avoid pump and dump scams as well as identify them before they pump.
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