Pump and dump

A manipulation in which people holding an asset promote it heavily to create buying, then sell into that buying and leave the new buyers holding the position.

Example

Coordinated promotion of a thinly traded security across social channels lifts the price sharply; the promoters exit and the price falls back, often further than it rose.

Important

It works best in assets that are thinly traded, because a small amount of buying moves the price a long way - which is also why the buyers cannot get out at the price they see.

Related terms

• FOMO (fear of missing out) — Buying because other people appear to be making money, rather than because you have formed a view about what the asset is worth.
• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.
• Speculation — Putting money at risk on an outcome you cannot analyse with any real confidence, hoping for a large payoff.

Lessons that explain it

• Fraud, and the tells that give it away — Most investment fraud does not look exotic. It arrives through someone you already trust, offers returns that are only slightly too good, and fails a small number of checks that take an afternoon. (12 min)

All 578 terms in the Investing glossary