One of the main reasons why newcomers are tempted by the lure of investment in the commodities market is that they do not understand the lingo and financial instruments of the market. Despite this, novice traders need to be on guard against scams as they prey on the inexperienced investors. Even more so, even experienced traders can become victims of scams. The following guide will help traders avoid falling victim to these scams and ensure their investments are safe.
A pump-and-dump scheme involves a scammer purchasing a low-priced stock and then spreading false information to drive up its price. The investor will create demand for the stock at a high price and then dump the shares, leaving the investor with worthless shares. Such a scam is traditionally conducted by cold callers, boiler rooms and fax, although today it also occurs via online newsletters.
A pump-and-dump scheme is another popular scam. The fraudster buys a low-priced stock and spreads false information to raise its value. Once the stock has hit a high price, the fraudster dumps it and disappears with the worthless shares. This type of scam is widely practiced in the commodities market, but it is still worth mentioning. Therefore, investors need to be extra cautious when dealing with these unscrupulous individuals.