Online brokerage Zerodha recently warned investors against the ‘pump and dump’ scam. It said it was one of the oldest scams in the stock market. The company said that in the last few months itself, there have been many such cases which have received media attention, but there are also many which have gone unnoticed. Here’s what Zerodha had to say about the ‘pump and dump’ scam:
What is ‘Pump and Dump’?
In a series of tweets, Zerodha said, in a pump and dump, the operator holding majority of the shares changes the prices by spreading messages through SMS, social media and then dumps the shares after the hike in the prices. Pump and Dump is one of the oldest scams in the stock market.
It added that SMS, Telegram and WhatsApp were the most popular channels to spread these stock tips for a long time. But lately, people with a large number of followers on social media and YouTube are getting paid to promote the stock through tweets and videos.
“A lot of investors, unintentionally or greedily, fall for these tips. They jump when they see the stock hitting the upper circuit, but get stuck once the operators dump the stock. In almost all cases, these stocks crash by more than 90 per cent and become worthless,” it added.
need for awareness
Zerodha said, “Although this is a well-known scam, a lot of people are caught in it. Over the years, we have regularly educated investors about these scams on Z-Connect, @tradingqna, etc. We also have a nudge on the kite to warn users when we are about to buy these suspicious stocks. But all these pumps and dumps cannot be known, so it is impossible to give users 100 percent warning “
He said today there are thousands of channels about trading and investing. For every sensible channel, there are 100 who are downright scammers. The irony is that scammers have the most customers.
advice for investors
“Please do not buy or sell based on random stock tips on Twitter, YouTube, WhatsApp etc. You are investing your hard earned money. There is no easy way to get rich quickly in the stock market. If something is too good to be true, it almost always is!” it said in a tweet.
It said that if one is new the market may look scary but if one has working knowledge of investing then things can be easy. “That’s why we at @ZerodhaVarsity spend time writing and answering questions.”
“If you are new to investing then start with mutual funds or ETFs instead of direct stocks. Then you can spend some time learning, find out what works for you, and invest accordingly,” Zerodha said.
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