Day Trading and Stock Market Secrets: How can you not be skeptical?
Just a quick note to announce that we found a wonderful article from the Federal Trade Commission that talks about the perils of believing all the hype and promises about day trading and stock market trading "with no risk" and in such a way that "you can't possibly lose". You can read all about what we call Day Trading Scams by clicking on 'day trading' on the left navbar.
Of course, what I don't understand is why people are so gullible. After all, no-one has successfully figured out the stock market as it's inherently chaotic because it reflects not just economic and political events, but the reaction that investors have to those events.
Not to mention the news that companies release on a daily basis through press releases, media announcements, and even filings with the Securities and Exchange Commission. Oh, and did I mention how day trading seems to involve a lot of what we call "pump and dump" activity?
Pump and dump, in case you're not familiar with the term, is why you get spam from people you don't know with titles like "Trading News Bulletin: XYZZ announces two-for-one split" and "Make money selling MCMD short today!" and similar. It's the practice - quite illegal - of buying a stock that's essentially worthless, then sending out false announcements to encourage others to buy the same stock. They buy it, the price goes up, and you dump what you're holding for a quick short-term gain.
Most commonly these happen with so-called "pink sheet" or "OTC" (over the counter) stocks, also known as microcap or penny stocks because they typically are worth less than $1/share. Sometimes they're companies that were with NASDAQ or another major exchange, but often they're just shells or empty little companies that exist for the specific purpose of separating you from your investment dollar.
The SEC has this to say about these scams:
"Pump and dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch. Often the promoters will claim to have "inside" information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create. Once these fraudsters "dump" their shares and stop hyping the stock, the price typically falls, and investors lose their money."
However you slice it, this is something to be avoided, yet it's one of the most common dangers associated with day trading and day trading schemes. So, as with much else that we talk about here at Real Life Debt, be careful, cautious, skeptical and beware.
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