If you've ever researched stocks, you've almost certainly come across a "pump and dump" scheme.
It works like this...
Some person or some group either acquires shares of a company, or is paid to promote a penny stock by someone who already owns shares.
The idea is to give publicity to the stock, thereby attracting other investors to buy.
This is the pump.
If the pump is effective, the amount of new buyers attracted to stock makes the share price start to rise, because there are more buyers than sellers.
But this is only temporary... The dump hasn't come yet.
Once the share prices starts to rise – and enough buyers have been attracted – the original person or group starts selling their shares.
They are selling their cheaply acquired shares at a higher price to those buying during the pump.
Some people make a lot of money from pump and dumps. Others lose it all.
