I realized my heart is too fragile to endure shocking news of trading. In the recent event, I discover that a penny trader is able to make 70k over day trading in a single trade.
I realized they use a pump and dump method.
These traders who have social media platform, communities send traders “signals” for what they are buying or selling. Hence, it creates a large amount of demand.
For those who does not have finance background:
In economics, we often use scarcity as a backbone to determine the optimal allocation of resources(They are limited, finite in number) . Penny stock company has limited number of shares. The manipulator will initiate by purchasing the cake before signalling to the community of traders. To determine who get the cake, highest bid will win the offer. As a result, price rises. The manipulator will then sell the shares to those who still believe the stock is still “worth it once he has reached his profit mark.
Profit : price he sold at – price he bought at.
Hence, he is able to make such profits. It is not technically a scam but I feel is unethical. Read more from SEC Website!
