Penny Stock Guru

Circular trading has been around for a long time and it has recently developed to a superb tool for manipulators. Circular trading is all about trading stocks within a certain group of people. Because of all the stock flow, rumors will be spread and the innocent investor will think the company has a great future. It seems like there is a genuine interest for the stocks and traders will be tricked into buying worthless stock. The manipulators then leave the building with the money in their pockets.

Circular traders often have various accounts to be able to trade the same shares between their own accounts. By trading them back and forth, they create an illusion of renewed activity. For a stock has been ‘asleep’ for awhile this trick does the job. Traders will pick up the activity and prices will be raised. The manipulators trick innocent people into buying their stocks because they made them appear as extremely attractive. The main objective is spreading the word that the company is a top-notch company and that the stocks will be worth a lot of money in the future. The raising of the price of the stocks has to happen fast, so people will jump in quickly with the effect that the price goes up even more.

For example, I am Trader A and my friend is Trader B. We both own stock in a certain small company, but the stocks are worthless. I start selling my stock to my friend B, he sells them back to me and the circle is started. Because of this new activity our stock price goes up. A promoter from my firm start leaking inside information and spreading the word. People jump in and buy our stocks. When the price peaks, myself and my friend Trader B sell all of our stock and the price collapses. This way we get the money, because we sell our stocks when the price is high and you loose your money, trying to sell your stocks as soon as you notice this pitfall.

Target companies are usually small companies. The company’s promoters will often play a part in this scam and will start to sell their stocks when the circular traders have spread some ‘genuine’ inside information. Of course, none of what the rumors say is true. The buzz picks up and the price of the stock will be lifted. People who don’t have a lot of experience or market intelligence, like day traders or retail investors, will be fooled and they will be left with worthless stock in the end. Once you start trading, you have to develop a sixth sense so you can recognize this kind of scam. Ask yourself the question why promoters are selling their stock when the company seems to be blooming?

If you don’t want to be fooled into this or any other scam, the most important thing to do is research. Find out as much as you can about the company, look at their financial health. Be aware of suddenly booming companies, is it possible to get such a price raise for your stocks in so little time?
Think before you act and don’t be the one holding the parcel when the music ends.