Beware Of Stock Scams

Posted by Nick Niesen on November 8th, 2010

Stock fraud and stock scams have been around as long as the stock market has been. With the invention of the Internet, stock scams have become very prolific and wide spread. The scams that are out there are too numerous to name, but a few of the more common ones are easy to spot.

One of the most common scams around is termed the slot machine scam, and this is an old scam that has been around for a while. This scam technique gives as many people as possible a wide variety of penny stocks to choose from. With these odds, someone is bound to get lucky on one of the stocks with a big win. The stock picker looks like a market whiz even though a lot of clients lose on the same scam. Make a broker that you are considering show you a track record that has consistently proven successful repeatedly, not just on one lucky pick out of many.

Another common stock scam is called a pump and dump. Penny stocks are bought in large share amounts, and then the purchaser spreads rumors in chat rooms about a takeover, or they pretend to have inside information and they pump up the value of a stock with no factual basis, then they dump their shares when the price jumps because of the rumors. This scam is not just unethical, it is highly illegal. Despite this fact, this stock scam happens frequently so beware.

One of the most common stock scams is called the selective star scam. A stock picker will publish legitimate winning stocks that they have picked, but the losers for the same time period is conveniently omitted. This makes the person picking the stocks look like a great market trader, when actually they may have an awful track record. This scam tricks you into believing your stock picking service is terrific, when in fact there are numerous losers for every winner.

Common stock scams are all over the Internet, and by understanding how some of these scams work, you may be able to avoid these scams. The best way to avoid being the victim of an online stock scam is to ask for an honest track record from your stock picker, including losses for the days included, not just the winners. For every winner there could be fifteen or more losers for that same time period. Purchasing large blocks of stock, spreading rumors to pump up the price, and then selling the stock at the inflated price is called a Pump and Dump. This scam happens way too often, and it is illegal as well as unethical.

Copyright © 2007 Joel Teo. All rights reserved.