The online trading scam has been on the rise, and it is a growing problem for crypto and forex traders. But one of the crypto scams has been around for quite some time and it is also entering the realm of these online assets. It is known as the pump-and-dump scam where the prices of assets are inflated. In this blog we will discuss How Does a Pump-and-Dump Scam Work in the Forex Market?
There are speculations and market sentiments that the promoters or the beneficiaries use to push the prices to a high point. As a result, it will pump the prices of online assets to a new high. Once it reaches a higher point, these promoters will dump their holdings.
This will cause the prices to decrease significantly and investors will lose their investments. While this scheme was quite popular in the stock market, fraudsters are not using it to target other types of securities as well. This includes the crypto coins and the forex currency pairs.
How Does a Pump and Dump Scam?
Pump-and-dump is an online trading scam allows quotex the fraudsters to profit from the price inflation by quickly selling the securities at a high price. This is referred to as the dump where the fraudsters will dump their holdings in the market. But before doing that, they would need to inflate the prices of the assets.
And they will do this by spreading rumors or misleading information about the particular stock, crypto coin, forex currency pair, or any other commodity. This will get others to believe that the prices of the particular asset will increase and they will invest in it.
However, the harsh reality is that these prices are inflated and the balloon will burst. Soon, the prices will start at a much faster rate than they went up when the scammers dumped their assets. This will trigger a selling spree, causing the prices to further go down.
How Are Fraudsters Able to Inflate the Prices of Prices?
There are different techniques that the fraudsters will use to increase the prices of the assets. For instance, they can spread rumors through different social media platforms and communication channels. This will develop interest from the general public who would like to invest in that particular asset.
Messaging apps like Telegram and Discord are quite popular among fraudsters to spread false information for their crypto trading scam. If you have lost money in a pump-and-dump scam, then a professional service provider like Claim Justice can help you. The experts can devise a strategy to help recover lost funds.
What is the Best Way to Save Yourself from a Pump and Dump Scam?
Now that you know what a pump and dump scheme is, you might be wondering how you can save yourself from it. Firstly, you need to avoid being part of the “herding effect.” This refers to going behind others and investing in a particular asset without knowing about its dynamics.
You need to understand the reason behind the price movements to ensure that you don’t end up making the wrong decisions. Also, review the financial metrics, such as balance sheet and P/L (Profit and Loss), statements to find out whether or not it is worth investing in a stock.
This can be a little challenging when it comes to crypto coins. There aren’t specific KPIs (Key Performance Indicators) that can help traders to know about the potential of crypto coins. Nevertheless, you can take advantage of the charting tools and analytical features that a reliable online broker provides. It will give you a better idea about that investment option and ensure it is not a cryptocurrency scam.
Before investing in any asset, it is highly important that you take a close look at the dynamics that are causing the prices to increase. Instead of just following the market sentiments, you need to DYOR (Do Your Own Research). This will help you to find out whether or not the growth is facilitated by cold hard facts or just speculations.