PUMP AND DUMP Meaning and
Definition
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Pump and dump is a term commonly used in the financial world, particularly in the context of securities markets and cryptocurrency. It refers to a fraudulent practice where individuals or groups artificially inflate the price of a specific investment, usually a low-volume, low-priced stock or a cryptocurrency with limited liquidity and market capitalization.
The "pump" part of the term represents the deliberate promotion and recommendation of the targeted investment to unsuspecting investors, often through aggressive advertising, online messaging boards, or social media platforms. This promotion aims to create a buying frenzy and generate a sudden surge in demand for the investment, leading to a rapid and artificial increase in its price.
Once the price of the investment reaches a certain level, the individuals or groups who initiated the pump and exerted influence to drive up the price sell off their holdings, taking advantage of the inflated value. This is known as the "dump" phase. The manipulators typically earn substantial profits from the inflated prices while leaving unsuspecting investors with heavy losses as the price quickly returns to its original value or even plummets below it.
Pump and dump schemes are considered illegal in most jurisdictions as they manipulate markets, mislead investors, and lead to unfair trading practices. Authorities and regulatory bodies actively seek to identify and prosecute those involved in pump and dump activities due to the significant risks they pose to investors and overall market stability.
