Pump and Dump

A pump and dump is a form of market manipulation where someone who already holds a position in a stock works to artificially inflate its price, then sells into the buying they created, leaving later buyers holding a stock that falls back down once the promotion stops.

The mechanics are simple. A person or group accumulates shares in a cheap, thinly traded stock, then "pumps" it by spreading hype through chatrooms, social media, mass emails, or paid trading alert services, often with exaggerated claims about news, a breakout, or insider information. As new buyers pile in, genuine demand pushes the price up. The promoter then "dumps" their own shares into that demand at the inflated price, and once the buying pressure fades, the price collapses, usually leaving the last buyers with losses.

The nuance that trips people up is that a pump and dump does not require an outright lie. It can happen inside legitimate-seeming communities, where a trading educator or "signal caller" tells followers to buy a specific low-float stock at the same time, without disclosing that they already hold shares and plan to sell into the volume the group generates. The followers' own buying becomes the exit liquidity for the person running the scheme, which is what makes it manipulation rather than just a bad call.

This scheme works best on stocks that are cheap and illiquid, meaning there are few shares trading and a small amount of buying can move the price a lot; it is much harder to pull off on a large, heavily traded stock like a major index component.