Noting ‘pump and dumps’ to be one of the oldest scams in the stock market, Zerodha recently stated that though, some cases come under the scanner, most go unnoticed. Further, educating investors about how the scam is carried out, the online stockbroking agency also showed them how to remain vigilant of such frauds to avoid being duped. Read here to know more:
What is ‘Pump and Dump’?
In a pump and dump scam, operators who hold most of the shares move the prices by spreading messages through SMS, social media and then dump the shares once the price rises, Zerodha notified.
SMS, Telegram, & WhatsApp, were the most popular channels to spread these stock tips for a long time. But of late, people with large followings on social media and YouTube are being paid to promote stocks through tweets and videos.
In the last few months alone, there have been multiple instances that got media attention. But there are several that go unnoticed.
A lot of investors, unknowingly or driven by greed, fall for these tips. They jump in when they see a stock hitting upper circuits, but are stuck once the operators dump the stock. In pretty much all the cases, these stocks end up crashing 90%+ and become worthless. Though this is a well-known scam, a lot of people still fall for it, the stock broker alerted.
3 tips to avoid being duped:
- Please don’t buy or sell based on random stock tips on Twitter, YouTube, WhatsApp, etc. You’re investing your hard-earned money. There are no easy ways to get rich quickly in the stock market. If something is too good to be true, it almost always is, it also mentioned.
- Having said that, we understand that the markets can seem scary if you are new. But things can get easier if you have a working knowledge of investing.
- Start with mutual funds or ETFs instead of direct stocks if you are new to investing. You can then spend some time learning, figure out what works for you, and invest accordingly, Zerodha advised.