Jun 19, 2021
Stock trading scam calls
Finance
You must have received those messages or calls about stock tips from random numbers. The stock market is in a “hope” frenzy right now and so are the scams around it.
Here is a very basic idea of how a stock market call scam works:
- Scammers will buy 20,000 mobile numbers of the people who actively trade and have less history of trading (relatively new Demat accounts) than vendors.
- Divide them into two groups of 10,000 and send them tips for the same stock but “buy” recommendation to one group and “sell” recommendation to the other.
- One of them turns out correct, of course. Divide the group that received the right recommendation into two more groups and send them another recommendation, “buy” to the first and “sell” to the second.
- Repeat this five times and you have 625 people who got the correct recommendation 5/5 times and 625 people who got the right call 4/5 times (which is still very good!).
- Many from these 1250 people can be used to take advantage of — in the next call — in a way that benefits the scammer.
Here is how one of the many schemes, “Pump and Dump” works:
Suppose Harshad (pun intended!) is doing the pump and dump and Rakesh is one of the 1250 people who is going to be scammed.
Harshad will buy some small-cap or penny cap stock (since it has low volume and market cap, buying even a small amount will push the price up). He’ll keep doing this for a while and spread the message that he’s doing it. He’ll also spread good rumors about the company which motivates others to buy.
*Penny stocks are mostly offered by companies with lower market capitalization.
At last, fake “buy” calls, SMSes, e-mails, messages on Whatsapp and Telegram follow. These calls go to people like those 1250.
Now imagine instead of 1250, this was 12.5 lakh people.
Lesson
Rakesh is naive. Don’t be like Rakesh. Almost 999 out of 1000 messages or calls on stocks are fraudulent, don’t follow them. Do your research before investing. Follow the advice of people who are qualified to offer it. Check credentials.
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