by Refundaroo | Nov 16, 2020 | Cryptocurrency, Stock trading
Modern investors must be vigilant against various scams, including accounting scandals, insider trading, and other forms of fraud. One particularly deceptive scheme is the pump and dump scam.
In a pump and dump scam, stock investors heavily promote a company to create hype. Once the stock price is artificially inflated, these investors sell their holdings to unsuspecting buyers, causing the stock price to plummet. This leaves ordinary investors with substantial financial losses.
How pump and dump scams work
Creating hype
The initial phase involves existing investors spreading news and rumors about upcoming company announcements, promising significant increases in share prices. These announcements are presented as transformative events, designed to spark a surge in demand for the stock.
Attracted by the promising news, many investors purchase the stock, driving up its price in the short term.
Dumping the stock
After the stock price reaches a targeted high, the original investors begin selling off their shares to realize substantial profits. As the market catches on that these initial investors are exiting, the share price starts to fall.
New investors who bought into the hype are left facing significant losses. This strategy can be particularly harmful to inexperienced investors, leading to severe financial setbacks.
Example of a pump and dump scam
A notable example occurred in 2015 with the American firm Jammin’ Java. The company’s CEO and key promoters orchestrated a pump and dump scheme by disseminating false and misleading newsletters about the company’s prospects.
These newsletters quickly gained traction online, attracting a large number of new investors. The fraudsters also used complex offshore entities to conceal and move funds.
Before the scheme, Jammin’ Java’s stock was priced at $0.17 per share. After generating the hype, the price soared to an intra-day high of $6.35 per share. The perpetrators then sold their shares, reaping significant profits.
The securities and exchange commission (SEC) estimated that the fraudsters made around $78 million. The CEO and eight others faced civil charges from the sec.
Pump and dump scams can cause severe financial harm to investors. These schemes are often executed with such complexity that new investors may not realize they are being deceived.
The Jammin’ Java case highlights that even top management can be involved in such frauds. Investors should exercise caution before investing in overhyped stocks and conduct thorough research to protect themselves from these scams.
by Refundaroo | May 19, 2020 | Forex, Stock trading
Introduction
Automated trading systems seem like a dream come true – program a computer to execute trades based on predetermined criteria, and watch your investments grow without the hassle of constant monitoring. However, the reality is a bit more nuanced. Let’s delve into the pros and cons of automated trading to gain a comprehensive understanding.
The pros of automated trading
The primary advantage of automated trading is its ability to remove emotion from the equation. Unlike human traders, automated systems operate purely on logic, eliminating the risk of impulsive decisions driven by excitement or fear.
Another significant benefit is the utilization of “backtesting,” where historical data is analyzed to forecast future market movements. This technique, once exclusive to large institutions, has now become more accessible to individual traders.
Moreover, automated systems operate tirelessly, 24/7, processing vast amounts of market data and responding instantly to new developments. They offer unparalleled convenience, efficiency, and speed, with comprehensive market coverage.
The cons of automated trading systems
While automated trading offers many advantages, it also presents several challenges. The success of these systems hinges on the effectiveness of the trading strategies programmed into them. Poorly designed strategies can lead to financial losses or missed opportunities for profit.
Additionally, automated systems are susceptible to technical glitches, such as power outages or internet disruptions, which can derail trading operations. Constant monitoring is essential to ensure smooth functioning.
Designing automated trading systems is complex and requires meticulous calibration of algorithms. Changes in market conditions can compromise the effectiveness of these systems, leading to unintended outcomes.
Furthermore, automated trading eliminates the human element of intuition and gut instinct, which has historically led to successful investment decisions.
Avoiding scams associated with automated trading systems
As with any financial endeavour, there are risks associated with automated trading systems, including scams. It’s essential to exercise caution and due diligence when selecting trading platforms or brokers. Look out for red flags such as unregulated companies, unrealistic guarantees, and difficulty withdrawing funds.
Ensure that any company you engage with is fully licensed and regulated. Research their trading record, read online reviews, and verify their physical presence and staff credentials. Don’t be afraid to ask questions, especially if you’re new to the game. A genuine broker will be happy to help you. And remember that if you’re unlucky enough to fall victim to a forex fraud (links to refundaroo.com/forex-scam/or trading scam, there are expert companies out there who may be able to help you get your money back.
Conclusion
Automated trading systems offer significant potential for investors but require careful consideration and monitoring. Before venturing into automated trading, ensure a thorough understanding of market dynamics and choose reputable brokers. Remember to stay vigilant against scams, and seek assistance from expert companies if needed. Automated trading can be a valuable tool in your investment portfolio, but it’s essential to approach it with caution and diligence.
