How to avoid pump and dump stocks?

Pump and dump stocks are yet another scam that has used the electronic medium to a fine art. With the advent of the internet and email, scam companies are developing shrewd methods to take your money. You should be on the alert and stay as far away from them as possible. Here are few key factors to note in recognizing and avoiding the scams.

Knowing How It Works:
Someone (usually a scam company) buys up a lot of penny stocks at an incredibly cheap price. These are usually those that no one would think of buying. They then begin an email campaign, using multiple sources so that it doesn't look suspicious. The emails will consist of advising that the penny stock company is an excellent investment and continue to pseudo newsletters. The newsletters will include hyped up stories about the penny stock company, indicating how well they are doing. This is supposed to increase your interest and spur you to buying the stocks. They may also have their own website that adds to the hype of the supposed company. As people fall prey and buy the stocks, the penny stock price starts to go up and the scam company quickly sells, making a large profit and leaving you out to hang.

How to Avoid Pump and Dump Stocks:

1} Never buy from anyone you don't know and trust.
If you aren't familiar with the company that is emailing you and you haven't signed up for their newsletters, then do the research to find out who they are but don't jump in because it might sound like a good deal.

2} Investigate where the stocks are traded
The NASDAQ has requirements that are usually too high for the thinly traded stocks. These usually trade on the bulletin boards or OTC (over-the-counter) and are the most risky types of stocks as well as the most easily manipulated.

3} Who is making the claims
Anyone can make claims about a company. Do your homework to validate that these claims are true. Do your research using SEC's Edgar database as well as your state's securities regulator. Talk to your investment counselor and get their advice. Check out the website to see who the company really is that's encouraging you to buy, how long their site has been up and if there have been any complaints about them.

4} Enter with a level of skepticism
Being a skeptic when it comes to your hard earned money is just good common sense. Don't fall prey to high pressure sales pitches. If anyone mentions once-in-a-lifetime, you know you are probably being scammed. A level of doubt will keep you on target so that you can find the best investments.

5} Easy Money Doesn't Exist
As with anything in life, use your common sense. If it sounds too good to be true вЂ" you don't want to be the one to find out that it isn't. You work too hard for your money so don't fall prey to the temptation of potential easy money.

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