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Learn About the Penny Stock Pump and Dump

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Beware the Penny Stock Pump and Dump

Penny Stock Pump And DumpThere are many dangers in the penny stock market but the penny stock pump and dump is probably the most common. Veteran traders know that this section of the market is fraught with various dangers. However, the danger presented by your fellow traders is actually the greatest.

You do not have to know much about the stock market to see why penny stocks have such low share value. Their assets and business plans are often difficult to verify. They do not even file with the SEC, so it is nearly impossible to get valid data about these companies. They become particularly dangerous when unethical traders use them to further their own gains at the expense of everyone else.

 The penny stock pump and dump scheme is very simple. A trader takes advantage of the low price of a particular penny stock. He or she buys up as many shares of a low-priced stock as possible. This trader holds onto the shares for a while and watches the disappointing performance of the stock. Since the trader only needs a comparatively insignificant rise in value to make a lot of money off a huge quantity of shares, he or she begins a campaign to advertise the stock. As soon as a lot of people begin to snap up the stocks, the share values will increase automatically just due to the volume of trading. When this price increase has nearly run its course, the first trader sells his numerous shares for a profit. The other shares lose value automatically. Worse, those traders still holding shares cannot find buyers.

 How to Avoid the Penny Stock Pump and Dump

You can avoid this fate by simply refraining from trading on the penny stock market. You can also keep your wits about you and ignore obvious ploys to get you to buy stocks based on hype. Either way, you must defend yourself from the penny stock pump and dump with your own stock trading wisdom.

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