Don't Get Caught By This Stock Tips Spam Scam.

Spam emails have been the scourge of the Internet for a number of years now and the problem is still growing despite legislation, zealous spam filters and all sorts of clever techniques to prevent it.

I'm sure that most of us have been subject to unsolicited email messages (spam) promoting medications, virility enhancers, impotence cures, mortgages, loan consolidation schemes, gambling and pornography to mention just a few.

Now we have a another subject hitting our inboxes - the unsolicited "hot stock tip" or to give it it's more meaningful description, the "Pump and Dump" scam.

If you're not familiar with the term "Pump and Dump", let me explain how it applies to spam email...

"Pump and Dump" scams are email campaigns offering "hot stock tips" designed to engineer a buying frenzy for a particular company's shares, thus rapidly inflating the stock's market value. The spammers (read "scammers") then dump their shares back into the market and make a fast exit with their profits from the artificially inflated price.

Once the scammers have dumped their shares and stop promoting (pumping) the stock, the price drops rapidly and investors lose their money.

This is not a new scam by any means. "Pump and Dump" schemes have been around in the offline world for a long time. However, the Internet, and in particular email, has added a whole new dimension to this scam, making it simpler and cheaper to promote these "hot stocks" to vast numbers of potential investors.

How do you recognise these "Pump and Dump" scams for what they are?

Generally speaking it's relatively simple. These "hot stock" promotions usually centre around a company whose shares are traded for just pennies on the Over-The-Counter (OTC) market where "normal" trading in them is extremely modest. In addition to this there is often little or no information available about the company.

The reason this type of company is favoured by the scammers is because it's a lot easier to manipulate the stock prices, and the returns for the scammers can be hundreds of percentage points above the starting price when they dump their shares back into the market and take their profits.

Hundreds of percentage points above the starting price!

This sounds like a great way to make money - right?

Well for the scammers it certainly is. But what about those investors who are "not" part of the scam?

This is where the problem lies and the big losses are made. Why? Because those investors outside the scam never know when the "Pumpers" are going to "Dump" their stock and leave the price to plummet back to it's normal trading levels, resulting in losses for a large number of investors.

So how do you avoid getting ripped off by these scam artists?

To my mind that's quite simple. Most reputable companies don't use spam as a marketing tool, so you can be pretty certain that if you received the "hot stock tip" unsolicited it's from a "Pump and Dump" scammer. Just delete the email and save your money for a legitimate investment.

About The Author:
Andre Anthony owns and operates 101 Online Trading a resource for online investors. Visit http://www.101onlinetrading.com today to find strategies, tips, tools, products and resources for effective online trading. For Real-time Stock Picks that will allow you to trade like a Pro subscribe to : http://www.101onlinetrading.com/sl/soler-stock-picks.htm
Submitted: 2006-10-27
Article Source: GoArticles