As long as there has been a stock market, there have been scams and frauds involving stocks. Since the Internet was created, stock scams have become more common and widespread. There are too many scams to list them all, but some of the most common ones are easy to spot.
The slot machine scam is one of the most common types of fraud, and it has been around for a long time. This scam gives as many people as possible a large number of different penny stocks to choose from. With these odds, one of the stocks is bound to be a big winner for someone. Even though a lot of clients lose money on the same scam, the stock picker looks like a market expert. Make sure that a broker you're thinking about can show you a record of success that isn't just based on one lucky pick out of many.
A pump and dump is another type of stock scam that people often use. Penny stocks are bought in large amounts. The buyer then spreads rumours in chat rooms about a takeover or pretends to have inside information and drives up the price of a stock without any factual basis. When the price of the stock goes up because of the rumours, the buyer sells their shares. This scam is not only immoral, but it is also against the law. Even though this is true, this stock scam happens often, so be careful.
The selective star scam is one of the most common stock scams. A stock picker will put out a list of legitimate winning stocks that they have chosen, but they will leave out the losers for the same time period. This makes the person who chooses the stocks look like a good trader, even though they might have a bad track record. This scam makes you think that your stock-picking service is great when, in reality, there are many losers for every winner.
There are lots of common stock scams on the Internet. If you know how some of these scams work, you might be able to avoid them. The best way to avoid falling for an online stock scam is to ask your stock picker for an honest track record that shows both wins and losses for the days in question. For the same amount of time, there could be fifteen or more losers for every winner. A "Pump and Dump" is when someone buys a lot of stock, spreads rumours to drive up the price, and then sells the stock at the higher price. Too many people fall for this scam, which is both illegal and wrong.
All rights reserved. Copyright (c) 2007 Joel Teo.
