The pump and dump strategy is a related issue that some penny stock services often struggle with if the volume is extremely low. Financial advisors like ziptrader and investopedia do not use this technique. They are some of the top & best penny stocks to follow in getting good results in your gains. Although it is not illegal, it certainly feels like it ought to be because it directly manipulates the value of a penny stock and is often done by someone from within the business, such as:
1. A person buys a large number of shares in a stock. This is usually for penny stocks, although it could theoretically happen with any stock. The absence of volume of several penny stocks makes them more likely to be targeted by pump and dump schemes. They are much easier to manipulate.
2. That individual then tries to promote a stock by offering false or possibly misleading statements regarding the stock’s ability to grow. In years past this was done through cold calling methods by phone. Today, individuals can go to social media or set up their own blogs to promote these stocks.
3. Individuals then fall for these statements and purchase the stock. The people who choose to purchase these stocks are usually willing to invest in them without thinking twice. They may be emotionally driven into investing in these stocks and not investigating the company thoroughly.
4. After enough people buy the stocks in question, the man who started the scheme will sell off his shares as that person will have made enough money from the people purchasing the stock.
5. The people who fell for the pump and dump scheme could lose hundreds or even thousands of dollars from this trick. The problems with the pump and dump scheme are very significant.