As the method of investing in the stock market has become easier, scams are also happening through it. SEBI keeps cracking down on big companies every day. Recently, the case of Jane Street, a big global algo trading company of America, was in the news. The company had defrauded investors of thousands of crores of rupees under the guise of futures and options. Similarly, a pump and dump scheme runs in the market, through which big investors suck the hard-earned money of retail investors. Let us tell you about this pump and dump scheme in detail.
The pump and dump system has been working in the market for a long time. This is a type of financial fraud. In this, scammers first buy and increase the price of a particular share. After that, when the price increases, they sell their shares from that company and leave, after which the company's share suddenly crashes. This process is called pump and dump in the language of the market.
Pump and Dump Scam
In Pump and Dump, big investors first choose a penny stock or a low priced stock. Then they buy a lot of shares of that company. After this, they promote it a lot on social media platforms like Instagram, Facebook, after which people gradually come to know about that stock and start investing. This increases the value of the stock and as soon as the value goes high, big investors withdraw their money and the stock suddenly crashes. Due to this, small investors suffer a lot.
For example, we can understand it in this way, suppose there is a company whose one share is worth Rs 2 or Rs 5. So the pump and dumpers buy lakhs of shares of that company. They start promoting it, due to which retail investors start investing in it. By the time the share of Rs 2 reaches Rs 5, many investors come into it. After that, big investors i.e. scammers withdraw their money from that share, due to which the valuation of the company decreases and the shares suddenly crash. In such a situation, the hard earned money of small retail investors who want to earn from the stock market gets lost.
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