Pump and dump schemes are a form of securities fraud that involve the pumping of stocks and the subsequent dumping of those same stocks. Pump and dump scams target penny stocks traded on the OTC Bulletin Board or Pink Sheets.
The scheme involves selling shares in companies with low trading volumes, where there is little information available for investors to consider before buying in. Unfortunately, many uneducated investors do not realize they are being scammed until it’s too late after they’ve purchased shares at artificially high prices, only to sell them off once their value has dropped back down again. For trading in cryptocurrencies, always choose reliable software and register for free.
What is Pump-and-dump?
Pump-and-dump schemes are a type of market manipulation that can occur in cryptocurrency. In a pump and dump scam, fraudsters will buy up large quantities of a low-volume cryptocurrency before promoting it to drive up the price.
They then sell their coins at an inflated price, causing other investors to think that the currency is gaining value and encouraging them to buy more before it crashes back down again. This can result in significant financial losses for those who have bought into the scheme blindly, as well as potentially damaging their reputation within the crypto community if they have been involved in promoting fraudulent behavior.
These scams are illegal under US law but still incredibly widespread throughout many countries, including Europe and Asia Pacific regions, where regulations against such activities are less strict than those in America. You must know how these scams work so that you can protect yourself from falling victim yourself!
Here’s how pump and dump schemes work
Someone will post on social media or elsewhere that they’re about to make a big announcement about a new cryptocurrency. This could be an announcement of an ICO, or it could simply be something positive, like news that their cryptocurrency has been listed on a new exchange. In either case, whoever made the announcement will probably have bought up some of the coins in question and then spread the news to get other people to buy. The goal is to increase demand for these currencies, which makes them more expensive and gives people who own them more money.
How to spot a pump and dump scheme?
To identify and avoid a cryptocurrency pump-and-dump scheme, you need to be able to recognize the signs that someone is trying to manipulate the price of an altcoin. Here are some red flags:
A sudden increase in trading volume is a fraud scheme. This can indicate that buyers are buying up all available tokens to artificially inflate their value so they can sell them at a higher price later on.
A spike in token prices after being listed on new exchanges or added as an accepted payment method for merchants can be a scam. These events bring more attention and visibility, which means greater opportunity for quick profits by manipulating prices before they settle down again once traders have realized what’s going on.
How to avoid getting scammed?
So, what’s a trader to do? Avoid buying into a coin when the price rises and buying into a coin when the price is falling. And only invest through official software. However, there are times when both of these scenarios occur in tandem, which can make it difficult to determine whether or not an elaborate pump-and-dump scheme is duping you. If you see two trends happening at once, one going up and one going down, stick with your gut instinct and stay out of that particular trade.
Another way to spot a pump-and-dump scheme is by looking at how much more active someone’s social media channels are if you follow them already and aren’t used to seeing them post regularly before now! Do not assume this person must have been away on vacation while all this was happening; they may simply be promoting something new that they’re involved with-. Whatever it might be could still be part of some type such scamming activity if everything else looks suspicious enough.
Final Words
So, that’s all it takes to spot a pump-and-dump scheme. The best thing to do is to keep your eyes open, be vigilant and know what you are investing in. Don’t fall for these scams!