Scams can be defined as a dishonest scheme. Stock investment scams are intended purposefully to swindle share market investors’ money. Often, it gets started with potential profit promises that are hard to turn down. The common thing that every kind of scam is the victim ends up buying stocks with no or little value. They feel cheated and this is a fact.
What does a stock scam look like?
Is there any indication for identifying a possible stock scam? You will need to learn about the variety of scams that can possibly victimize you. It will help you stay away from them.
Common stock market scams in India to be aware of
Pump & dump
Spreading false information about anything, especially investments is easy. Several scammers do this with a scheme called pump & dump. A specific stock gets promoted through online investment newsletter, the company’s website, text messages, emails, chat rooms, fax, and phone calls to prospective investors.
Every promotion method speaks about how good the company is performing and may even be introducing a new product line or such lies that can make the stock sound better.
Some investors feel inspired to buy the stocks whose price will drive up soon. The scammers who started the company and sold all their shares stop stock promotion and the price drops down. A victim wanting to sell will have to do this at a much low value.
In a Ponzi scheme, a person at the center collects funds from new investors. The funds are not invested but used to pay inflated returns to previous investors. This scheme continues for quite some time until the center person is unable to target new investors effectively or many investors in the scheme wish to liquidate their funds.
It is similar to a Ponzi scheme, except the previous investors recruit new investors. Investors have found to be making more from new member recruitment than from what they initially invested. Just like Ponzi, the investment is used in paying returns to previous investors until the whole scheme collapses. The majority of investors lose their money.
Members of a specific minority group or immigrant or religious organizations or the elderly are targeted. Investors are vulnerable to someone with shared bonds and without second thought invest in the deal.
Advance fee fraud, micro-cap fraud, social media fraud, pre-IPO investment scams, and offshore scams are some of the other types of stock scams to be aware of. So, always investigate investment opportunities that don’t come via traditional channels.