Pump and Dump Scams Are Becoming More Sophisticated and Harder To Recognize You are probably familiar with the basic concept of a pump and dump scam. A scamster(s) buys up a bunch of worthless penny stock. Then they "pump" it (another way of saying hype it) and dupe people into believing it is a stock they should rush out and buy based on the rumor they are speading. As more and more people buy into it, the price goes up of course, based on simple supply and demand. The price is now artificially inflated because the real value of the stock hasn't changed. Then, after the price has risen substantially, they "dump" it (sell it) and rake in their ill-gotten profit. Very quickly after they sell, the stock price usually plummets and most investors …show more content…
Other people put the cut-off lower saying that a penny stock is any stock that trades lower than $1/share. Either way, "penny stocks" can trade on any of the boards. Even the very reputable New York Stock Exchange (NYSE) can host a penny stock from time to time, although if the company stays in that territory for a long time they'll likely get booted off the NYSE. It is common for the NASDEQ to host several penny stocks as does the AMEX. However, when most people think of penny stocks, they tend to think of stocks that trade on the bulletin boards (OTCBB) or the pink sheets where things aren't as tightly regulated. Most investors new to trading penny stocks know that stocks that trade on the NYSE, NASDEQ, and the AMEX have more requirements to list on these boards, and therefore, more is known about the fundamentals of these companies. However, what many new investors don't realize is that there is a HUGE difference between a penny stock trading on the OTCBB versus the pink sheets. The OTCBB is actually owned by the NASDEQ and it has many more requirements for a stock to list on it than do the pink sheets which have virtually no …show more content…
However, I want to emphasize to you that the potential for fraud is FAR GREATER for a stock listed on the pink sheets than on the OTCBB - there is a very substantial difference. You should always take this into consideration before you make any trade. You should be particularly wary of any stock trading on the pink sheets. So, keep your antennae up! Trading Volume Really Matters and I'll Tell You Why If you are trader used to trading stocks that are hosted on the NYSE, NASDEQ, and AMEX, you may be in for a rude awakening when you first start trading penny stocks on the OTCBB and pink sheets. The volume for these stocks is understandably lower than for stocks trading on the bigger boards. However, sometimes the volume can get so low that it prevents you from selling a stock when you need to, i.e. you can easily get stuck with a stock that is heading south in a hurry and you can't unload it. So, be wary of any stock that is trading at a really low volume. When "Free" Isn't Really