Terming ‘pump and dump’ as one of the oldest scams in the stock market, Zerodha recently said that though some cases come under scrutiny, most go unnoticed. Further, educating the investors about how scams are carried out, the online stockbroking agency also showed them how to be on guard against such frauds to avoid getting scammed. Read here to know more:
What is ‘Pump and Dump’?
In a pump and dump scam, most of the stock holding operators modify the prices by spreading messages through SMS, social media and then dump the shares when the price rises, zerodha notified.
SMS, Telegram and WhatsApp were the most popular channels to spread these stock tips for a long time. But lately, people with a large number of followers on social media and YouTube are getting paid to promote the stock through tweets and videos.
In the last few months itself, many such cases have come to the fore, which got the attention of the media. But there are many others which do not go unnoticed.
A lot of investors, unintentionally or motivated by greed, fall for these tips. They jump when they see the stock hitting the upper circuit, but get stuck once the operators dump the stock. In almost all cases, these stocks crash 90%+ and become worthless. Though it is a well known scam, still many people fall for it, cautioned the stockbroker.
3 tips to avoid being duped:
- Please do not buy or sell based on random stock tips on Twitter, YouTube, WhatsApp etc. You are investing your hard earned money. There is no easy way to get rich quickly in the stock market. If something is too good to be true, it almost always is, also mentioned.
- Having said that, we understand that the market can seem intimidating if you are new. But things can be easy if you have a working knowledge of investing.
- If you are new to investing, start with mutual funds or ETFs instead of direct stocks. You can then spend some time learning, find what works for you, and invest accordingly, advised Zerodha.