A fraud scheme is an extremely difficult situation to get out of and a number of people who have become victims could attest to this. Unfortunately, these fraud schemes are everywhere and if you don’t have enough know-what’s about them, you could end up a fraud victim. The most effective way to protect yourself is to stay informed. This article will give you essential information about the common fraud practices associated with penny stocks.
If you want to own a particular company, you need to buy a specific amount of its stocks. When profit comes pouring in, you will also benefit by getting a portion of their earnings since you are a stockholder of the company.
Among the stocks you can purchase are penny stocks. These are typically priced for under a dollar. But due to the very cheap price, penny stocks suffer from poor regulation and constant fraud practices.
Penny stock fraud is prevalent in the stock trading business, and they take on different forms. One is called the pump and dump. This happens when a couple of speculators acquire huge quantities of penny stocks and establish a position in penny stock trading. Then, they would disseminate positive and unexpected news about their penny stocks, which would lead people to irrationally purchase the stocks. This news is referred to as financial porn and has no inch of truth in it. But before the false news is exposed, the stock prices would have gone up already, and the people responsible for the financial porn would be profitting from it already.
Another prevalent fraud practice is the poop and scoop. It’s actually a reverse of pump and dump. In this scheme, the stock manipulators publish rumors that are detrimental to a company, causing their stock rates to plummet. Once the rates drop, the manipulators would purchase the stocks and wait for the rumors to die down before selling the stocks again. A variation of this scheme would have manipulators short selling the stocks before spreading the rumors.
Another kind of fraud in penny stocks that you should know is front running. In this case, the news being spread is true and accurate. However, before the news is released to the public, some insiders and brokers would have already known about it. Another name for this scheme is insider trading.
Even though penny stock fraud is rampant, that should not discourage you from purchasing them. You just need to be careful and know how to spot a fraud before you end up a victim. An important thing to take note of is the unpredictability of penny stocks. Because they are cheap and traded in low volumes, their rates could decrease as quickly as they increased. So, never make any bulk purchase of shares at once. Since they are also advertised heavily, it is likely that you would get a couple of stock mail. But it would be in your best interest to ignore them, as these could be fraud schemes in disguise.
Before you trade with penny stocks, make sure you know every detail about them. The first step to being a smart investor is being well-informed. This way, you could actually be successful in stock trading and avoid any problematic fraud schemes.
The contributor of this article has came across a capital structure expert by the name of Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.
categories: micro-cap stocks,stock market,amex,investments,investor relations,corporate finance,personal finance,financial planning,investing,money,retirement