Hey there, young investor! Are you ready to learn about the dark side of penny share trading? While penny shares can be a great way to invest and make a profit, there are some scams that you need to be aware of to avoid losing money. In this blog post, we’ll be going over some of the most common scams and how you can avoid them.
Pump and Dump Schemes
Pump and dump schemes are one of the most common types of penny-share scams out there. In this scam, a group of investors or a company will buy a large number of shares in a penny stock, and then start promoting the stock to the public through various means, such as social media, email, or even phone calls. This promotion creates hype around the stock, causing its price to rise rapidly.
Once the price has risen enough, the scammers will sell their shares, causing the price to drop quickly. The people who bought the shares at a high price will be left with worthless stocks. To avoid this scam, you should always do your own research before investing in a stock. If a stock is being heavily promoted but doesn’t have a strong financial background, it’s likely a pump-and-dump scheme.
Boiler Room Scams
Boiler room scams are another common penny share scam. In this scam, a group of fraudsters will set up a fake investment company and call potential investors, offering them shares in a “hot” penny stock. They will use high-pressure tactics to convince the investor to buy the stock, often promising high returns in a short amount of time.
Once the investor has bought the shares, they will often find that the company is fake or that the shares are worthless. The scammers will disappear with the investor’s money, leaving them with nothing. To avoid this scam, you should never invest in a stock based on a phone call or email from someone you don’t know. Always do your own research and only invest in stocks that have a strong financial background.
False Financial Statements
False financial statements are another common penny share scam. In this scam, a company will create fake financial statements that make the company look like it’s doing better than it actually is. They will use these statements to convince investors to buy shares in the company.
Once investors have bought the shares, they will find that the financial statements were fake, and that the company is not doing as well as it claimed. The stock price will plummet, and the investors will be left with worthless stocks. To avoid this scam, you should always research a company’s financial background before investing in its stocks. If the company’s financial statements seem too good to be true, they probably are.
Reverse Merger Scams
Reverse merger scams are another type of penny share scam. In this scam, a company that has no financial history or is in financial trouble will merge with a shell company that is already publicly traded. This merger allows the company to go public without having to go through the normal process of an initial public offering (IPO).
The scammers will promote the new company heavily, causing its stock price to rise rapidly. Once the stock price has risen enough, the scammers will sell their shares and disappear, leaving the investors with worthless stocks. To avoid this scam, you should always research a company’s financial history before investing in its stocks. If a company has no financial history or is in financial trouble, it’s best to avoid investing in it.
In conclusion, penny share trading can be a great way to invest and make a profit, but it’s important to be aware of the common scams out there. Always do your own research before investing in a stock, and never invest based on high-pressure tactics or promises of quick returns.