False advertisements or information and advertising sites on free penny stocks are not uncommon. This increases the risk for opening investors who are eager to invest in penny stocks but have not had sufficient information or practice to be discerning. They are the main targets for scammers and end up losing money in the stock market.
Here are the basic scams and how to distinguish them.
Pump and Dump Scheme
This scheme has been going on for years now, unfortunately, it still manages to hook people to this day. In the pump and dump scheme, the Internet suddenly sensationalizes a particular stock. Websites feature a positive press release about how good a certain product or company is doing. Stock market newspapers come up with glowing reviews of a hot stock, encouraging the reader to invest in it. Chat rooms and message boards are suddenly full of various investors all gushing about a stock. Radio, TV, and all the media start talking about the stock.
The fact is, the people on those message boards are usually the same small group of scammers under different names. The websites and newsletters give biased reviews because they are being paid by the company to promote the stock. The press releases are created by the company itself or that same group of scammers. There are even posters circulated at times.
It never fails to get the public attention due to its popularity. More experienced investors become wary and do background checks on the company, but the more gullible or inexperienced ones take the bait and invest in droves. Because the company hyped up is usually a failing one, after the ones behind the scheme sell their shares, the price immediately plummets, all the others left behind end up broke. They often do this with companies that are thinly traded or about which not much information exists, to dodge the more cautious ones who do background checks.
Chop Stocks
Other basic fraud is called "chop stocks". In this strategy, shares that are bought below market under Regulation S are sold illicitly sold out of the country. Occasionally, they're sold to domestic retail investors as well. This is to excuse them from being forced to register the stock.
Overseas Fraud
There are many incidents overseas especially in Asia or Eastern Europe of fraudulent free penny stocks. This is done by the accumulation of an enormous number of shares of a moribund penny stock. The scammers hijack accounts that they steal from terminals or hotels and buy shares with these accounts. They drain the accounts which they steal and their victims get shares for very low prices- but these are virtually worthless.
Front Running
Before it becomes public some people are made secret to insider news on stocks. This will give them the advantage over the majority of investors. This is illegal.
Circular Trading
A dormant stock is suddenly hyped up in this scheme. Trade activity is simulated by scammers by trading the stocks back and forth from within their own accounts. They are connected to certain brokers and commit cross trades with them.
People will always take advantage whenever money is involved. That is why such scams as free penny stocks and even international schemes arise. It is up to us as investors to be careful in making our choices.
Here are the basic scams and how to distinguish them.
Pump and Dump Scheme
This scheme has been going on for years now, unfortunately, it still manages to hook people to this day. In the pump and dump scheme, the Internet suddenly sensationalizes a particular stock. Websites feature a positive press release about how good a certain product or company is doing. Stock market newspapers come up with glowing reviews of a hot stock, encouraging the reader to invest in it. Chat rooms and message boards are suddenly full of various investors all gushing about a stock. Radio, TV, and all the media start talking about the stock.
The fact is, the people on those message boards are usually the same small group of scammers under different names. The websites and newsletters give biased reviews because they are being paid by the company to promote the stock. The press releases are created by the company itself or that same group of scammers. There are even posters circulated at times.
It never fails to get the public attention due to its popularity. More experienced investors become wary and do background checks on the company, but the more gullible or inexperienced ones take the bait and invest in droves. Because the company hyped up is usually a failing one, after the ones behind the scheme sell their shares, the price immediately plummets, all the others left behind end up broke. They often do this with companies that are thinly traded or about which not much information exists, to dodge the more cautious ones who do background checks.
Chop Stocks
Other basic fraud is called "chop stocks". In this strategy, shares that are bought below market under Regulation S are sold illicitly sold out of the country. Occasionally, they're sold to domestic retail investors as well. This is to excuse them from being forced to register the stock.
Overseas Fraud
There are many incidents overseas especially in Asia or Eastern Europe of fraudulent free penny stocks. This is done by the accumulation of an enormous number of shares of a moribund penny stock. The scammers hijack accounts that they steal from terminals or hotels and buy shares with these accounts. They drain the accounts which they steal and their victims get shares for very low prices- but these are virtually worthless.
Front Running
Before it becomes public some people are made secret to insider news on stocks. This will give them the advantage over the majority of investors. This is illegal.
Circular Trading
A dormant stock is suddenly hyped up in this scheme. Trade activity is simulated by scammers by trading the stocks back and forth from within their own accounts. They are connected to certain brokers and commit cross trades with them.
People will always take advantage whenever money is involved. That is why such scams as free penny stocks and even international schemes arise. It is up to us as investors to be careful in making our choices.
About the Author:
Trading penny stocks can be a good venture if you know where to put your money in. So get online reviews of the best penny stock in the market and start building your fortune a penny stock at a time.
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