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In Stock Trading, What is Pump and Dump?

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In Stock Trading, What is Pump and Dump?

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Pump and dump is a form of stock fraud in which people artificially inflate the price of stock in order to profit. It is most commonly used to target microcap stocks and penny stocks, stocks in companies with a low value, because the prices of such stocks are very easy to manipulate, and their prices are notoriously volatile, so consumers expect some irregularity in these types of stocks. In most nations, pumping and dumping is illegal, and the perpetrators can face fines or prison time. Stocks targeted by pump and dump schemes are sometimes called “chop stocks.” In the scheme, a group of people who own stock in the company begin to quietly spread misleading statements about the stock’s future performance, suggesting that prices are going to rise. They may use coldcalling, unsolicited e-mail, and Internet message boards to suggest that they are in the know about the company’s future, and that they are sharing information confidentially, leading people to believe that they are getting a

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