What’s “pump-and-dump”?

“pump-and-dump” is a term to describe an illegal trading strategies used by some big investors. A big investor or a group of investors have the ability to drive the price of a penny stock up or down because penny stocks are cheap and usually with low volumes. These investors first load shares of a penny stock and then promot the stock as a “hot stock” or “stock tip” to small players like you and me. After the small investors jump in, these big investors start to unload their shares, hence the penny stock will go back down. They make money by selling their shares to the small investors who loaded their shares base on their stock tips. This is called the pump and dump strategy.

This entry was posted on Thursday, April 28th, 2011 at 9:45 am and is filed under Penny Stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.