Social media and also the internet, in general, have become crucial tools for investors. Investors use social media to research stocks, hunt background information on a broker-dealer or investment advisor, find guidance on investing strategies, receive the latest news instantly, and discuss the markets with others. There is no limit.
On the other hand, however, social media also presents opportunities for fraudsters. By using social platforms, fraudsters can spread fake or misleading information about any investment asset to a large number of individuals with minimum effort and at a comparatively low cost. As per the U.S. Securities and Exchange Commission, fraudsters also conceal their true identities by acting anonymously or perhaps impersonating credible sources of market information. One way fraudsters may exploit social media is by participating in market manipulation, like spreading unauthenticated information about a couple of companies to affect their stock’s price.
Depending on the intent of fraudsters, the information they spread may be positive or negative. For example, in an exceedingly “pump-and-dump” scheme, promoters “pump” up the stock price by spreading positive rumors that incite a buying frenzy and that they quickly “dump” their own shares before the hype ends. Typically, after the promoters make the most of their sales, the stock price drops and the remaining investors lose money. In other instances, fraudsters start negative rumors urging investors to sell their shares so the stock price plummets. When that happens, they cash in on those shares at the artificially low price.
Example of Pump and DumpCarson Block has made a career out of sniffing out frauds and betting against them. At the time, he has sights on a much larger target: the Hong Kong stock market. He says that it’s one of the greatest “pump and dump schemes” of all time. Hong Kong stocks were being inflated and then passed on to the average investors. Specifically, Carson Block points to a spike in prices in many stocks in the final 30 minutes of a trading day, according to an
m/2015/06/02/-biggest-pump-and-dump-in-history-carson-block.html]article released on CNBC.
Deviation from low price to high price or vice versa causes a drastic loss for the investors who come under the influence of fraudsters.
Before you invest, here are some best practices you must undertake to play it safe in the stock market:- Do Own Research before investing.
- Consult with an approved investment adviser.
- Stay away from exchanges involved in fraudulent activities.
- Avoid high leverage as it may lead to a total loss of the capital.
How does AlphaEx try to avoid such an event?By reducing the deviation. For example, AlphaEx provides a maximum deviation of 30% where the fraudsters can’t raise the price certainly.
To further ensure your safety while trading, you can opt to use the AlpahEx exchange platform as we prohibit unprecedented deviation. To attain that, any asset’s price can experience a maximum deviation of 30%. This would prevent fraudsters from causing baseless price movements.
AlphaEx has also developed an AI-based tool that detects suspicious trading activity. In case of any such activity, the AI bot automatically blocks users involved in causing the stir and notifies the compliance team regarding the same to take immediate action. That’s how we keep a strong check on fraudsters from manipulating the market and render you a safe trading experience on AlphaEx.
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