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Scam 101 - Short And Distort

One of the things that you have to watch out for whenever you’re trading online stock is the many different online scams that these con artists and scam artists pull off. One of the classics of online stock trading is the traditional pump and dump. This is done with the use of different promoters who try to talk to investors about parting with their money to simply make money off the fall of a specific stock price. When you’re talking about online investments, you will probably hear of the Pump and Dumps sister, the Short and Distort. This pertains to the “short selling” that is done by the scammers. What happens is the short selling happens when it is done by another investor who does not own the stock that he or she is selling. There are several stages of the “Short and Distor” scam and we’ve outlined them for you so you will be able to know when you’re being scammed and how you can avoid it in the future.

We have set out below, the various stages of the Short and Distort.
Stage 1: Research. The short and distort scammer will find different stocks that might be overvalued and focus his or her attention on those stocks.
Stage 2: Short Sell. When there is some slight of activity regarding a particular stock because of some bit in the news, the short seller enters the market with the intent of and selling stock (which he does not actually own) short
Stage 3: Rumour Mill. This type of scam has a different type of approach. Unlike the scammer in the Pump and Dump scheme, the this Short and Distort scammer will now enter into campaign to weaken the worth of the stock that he is interested in. He eventually is able to make it sell short by spreading several rumors. He accomplishes this by posting several negative replies or comments on a particular message board or chat rooms and several other newsgroups. This plan targets different investors and entices them to simply let go of their stock with the implication that people might lose money if they don’t let go of their stock in the long run. The tactic that revolves around this is inciting fear in the different investors instead of excitement.
Stage 4: The Cover
The scammer will then buy some stock and will then have some of his fellow-scammers cross stock with each other so that people will notice that there is a great deal of selling that is happening right now which means that one should not hold onto the stock for too long.
Stage 4: The Loss
The investor who once bought the stock at elevated prices, sold his stocks at a lower prices on the mistaken belief that the stock was worthless based on the distortion campaign.

Posted in Stocks

October 11th, 2007 / No Comments
Steps To A Scam-Free Stock

Trading stocks online is quite profitable for anyone if they know what to look for. It’s important that every person who’s decided to go the online route will be giving enough attention to the little details and subtleties that go into stock trading. Because the potential for scams is quite larger, you may not be able to immediately jump into trading as safely as possible.
There have been instances wherein people who have prematurely jumped into online stock trading without asking around about the pros and cons of the business have succumbed unknowingly to different scams. They might have spotted the stock of a thinly-traded corporation and along with a bogus website’s tip or maybe a forum member’s egging the person eventually leads the person to buy a lot of the stock. Then after the hype is through, the scammers eventually sell their stock and they get rich afterwards while the poor unfortunate soul that they leave behind becomes a few hundred dollars poorer.
In order to not get scammed online, you should assume that the things that you see on the Internet, especially those which are related to online stock are not always true. A good rule of thumb is that you should assume an offer is a scam until you can prove through your own research that it is a legitimate offer and transaction. Otherwise, you’re setting yourself up for disaster and a hard-earned lesson. There are sites which have paid promoters who tell you in the forums that you’re able to profit a lot of money of you trade stocks with them or if you buy a specific stock. Be wary of these so-called traders because they do not have your best interests in mind.
Another good thing you can do whenever you’re dealing with stocks is to research where these stocks are traded. Most of the smallest and most thinly-traded stocks typically do not reach the listing requirements of the Nasdaq Stock Market or a national exchange such as the New York Stock Exchange. These thinly-traded stocks trade “over-the-counter” and are seen to be quoted on OTC systems. Those stocks which are traded in these types of systems are found to be the most risky and most susceptible to manipulation. So be sure that you’re always on the lookout for what you’re actually trading or you just might end up helping a swindler get rich while you, on the other hand, get poorer.

Posted in Stocks

October 3rd, 2007 / No Comments
Avoiding Online Stock Scams

It isn’t as rare as you think and if you believe that you won’t ever become a victim then you’re setting yourself up. What am I talking about? I’m talking about scams–down, dirty, no-good, two-timing, money-filtering scams. It’s what no one would wish to learn the hard way simply because it involves your hard-earned money. No one would actually want to be able to say, “I’ll just charge it to experience.” after being scammed because it’s not only your experience that’s debited—It’s also your bank book, your wallet and most of all, your ego. You’d never ever want to be scammed by anyone because it involves a big part of your money, time and effort whenever you enter into an investment relationship. So what do you do to avoid these types of fraudulent activity? You wise up. Here are some of the tips that you can follow in order to make yourself more scam-free with online stocks.
One of the best ploys that the sharks out there use is by “hyping up” a stock. You might see in a thinly-traded company’s website that their stock is one of the must-buys of the season. It would follow that the message boards, the chat rooms and other newsletters would provide sugar-coated information regarding the value of the stock. Some of the other routes that these investors might even go to great lengths as to advertising their stocks on the radio, television and some might even be featured in certain television shows. All of these could be potential stepping stones to losing your money to a shrewd con.
No matter what other outside sources say, you should be the one to investigate the stock itself. First of all, consider the source. Remember that the people who are voting for the stock may well be people who are inside the company who are trying to promote the company. When unsuspecting investors horde in the stocks for them to be able to sell them at a later time, the people who hyped up the stock eventually stop and the price of the stocks eventually goes down, leaving the group of shrewd cons with a lot money and a lot of grieving people in their wake.
Just be sure that you’re not one of the people who fall for this “pump and dump” scheme where they pump up the prices of the stocks and then they dump them on unwitting people who wouldn’t know better. Be sure. Be safe and research the company you’re buying from very well.

Posted in Stocks

September 26th, 2007 / No Comments
What To Remember In Online Stocks

Going into online stock trading is no laughing matter. It will require a significant amount of time learning the ins and outs of the business and you will always have something new to learn. In this type of business, everything else will rely on your technical know-how of stocks. Add to that the complexity albeit real-time mechanism of the Internet and you have a formula for enough confusion to last you a lifetime—or until you run out of money for investment. Here are some short and practical stock tips that you can follow when doing trading online:

The strategy should be followed as a rule of thumb. If you’ve recently acquired stock and the value goes down the next day even though analysis reports show that the stock is still optimistic, try to buy more shares of this particular stock. You could simply consider the purchase an independent trade. Who knows, other people might clue in on the bullish reports by the analysts and decide to buy those stocks from you anyway?

Never ever trade stocks that have a large bid-ask spread. This is often the case when the stock looks very alluring. If they happen to catch your eye, try to purchase it at the price between the bid and ask. You may want to use the limit order in this particular case since a transaction cost of more than 3% will make any good strategy unsuccessful.

Another thing to note is if you are able to notice a particularly large positive price change of around 10% during the first or second day, you should sell this stock early.

Should you run into some headline news regarding the stock, it is favorable for you when bad news has come out already. You should not be essentially afraid of some bad earnings report or maybe analysts downgrading what you have in your portfolio. Stock will eventually go up anyway. Just make sure that the short seller will be able to close their positions and the bargain hunters in the neighborhood are always ready to take a risk

Finally, be sure that you’re able to buy equal amounts of shares of stocks. If you have stocks which are smaller in price, they will have a much larger risk. Be reminded always not to always invest heavily your money in small stocks. And most importantly, if the stocks are on a downtrend, be sure not to hold on to them

Posted in Stocks

September 19th, 2007 / No Comments
Investors and IPO Lockups

From the word itself, lockups occur when the shares of company insiders are “locked up.” Lockup agreements prohibit employees, venture capitalists, and family and friends from selling their shares for a given time period. Typically, the company and its underwriter enter into a lockup agreement before the company goes public. This is to ensure that the insiders’ shares would not enter the market too soon after the initial offering.

Most lockup agreements prevent insiders from accessing their shares usually for a period of 180 days, but these may vary depending on the company situation. The number of shares that can be sold over a selected time period are also limited by lockups.

When considering investing in a company that has recently undergone an initial public offering, determine if the company is under a lockup and know when it expires. This is crucial because the company’s stock price may be affected when anticipating the lockup shares being sold into the market before and after the lockup ends. The stock that is valued at these agreements can be large enough, that is why potential sales level upon expiration should be a major consideration among public shareholders.

The existence of lockup agreements also somehow drives a wedge between the interests of the insiders and investors. Share values are enhanced by lockup agreements as investors believe that any negative information will most likely be revealed before the expiration. As such, investors would continue to hold a large stake in the company and align their interests with those of the shareholders. But recognizing the existence of lockup agreements does not necessarily close the information gap between insiders and outsiders. Insiders could withhold negative information during the lockup period prompting investors to feel anxious about selling towards the expiration date.

Nearing the lockup date does not imply that there is large selling of stocks by investors. Shares of IPO do better during the days directly before and after the lockup expiration. This is the time when shareholders feel certain about the future actions of insiders. But having fewer opportunities to indicate firm values and with the added concern for investors handling large amounts of stock, companies having high shares in locked-up stocks face negative market reactions. The ownership of venture capitalists who are more likely to sell their shares than their managers also impacts the price negatively.

Meanwhile unit issues, where the IPO issuer collects a share offer with warrants in one single unit, come out better in comparison. In this case, continued ownership is important. Investors believe that insiders would have an incentive to continue their commitment with the firm. They also feel more confident knowing there is management commitment to the company, by way of the insiders retaining a high degree of ownership after the offer has been made. Large firms also fare better than small firms, as investors generally have more information about them.

Posted in Stocks

September 17th, 2007 / No Comments
Online Trading Education

Most people are not as quick to pick up the terms that are common to online trading. Of course, no one expects you to simply just get all of the terminologies from the very first day. However, as you work your way up the ladder, you will be surprised to see and know that there are opportunities for you to fast-track your growth as an online trader. One of the things that you can do is to consider training and getting an education in an online trading academy. This will not only instruct you regarding the nomenclature but it will also give you practical tips and advice on how you can apply the things you’ve learned in the stock market. By the time that you’re through with an online academy course, you’ll be able to expertly tell the difference between commodities and stocks and in the future you’ll be able to define NASDAQ, FTSE 100 and other ambiguous acronyms.
There are other online trading academies who will send you all kinds of newsletters which give you some sort of information about how the stock market operates and how it works. This is how they are able to sell themselves to you. There are also people in those online trading academies who will give their credentials in order to boost their appeal to you. These people will have probably worked for the stock market before and have become quite successful on their own. There are also people who work in these online trading academies who have been able to buy and sell stock for a living. These are those people who have been able to make through their way by selling and buying stock as a means of life. The advice that they give to beginners will become the stepping stone that they need in order for them to break into the stock market business. If you are a stock market veteran however, they also offer some little secrets with regard to the stock market that only some people know.
When you do sign up, however, you’re not only going to learn about stock trading. You will also learn about the essentials of FOREX and the futures trading. You will eventually come across hot stock tips on what you need to purchase and where. More importantly, you’ll be able to know how long you’ll be able to hold onto them. By the time you finish with these online trading academies, you’ll have had enough knowledge to work your way up the profit ladder.
One of the other alternatives is to be able to purchase an e-book that comes along with the program of the stock market. It will usually give you enough information that is also provided in the course online. However, if you are not as diligent as you should be in studying, then that e-book alone will be unable to give you the necessary skills that you need to become an excellent and profitable online trader. After all, if you don’t put in the work, you have no right at all to demand that you be paid.

Posted in Stocks

September 12th, 2007 / No Comments
eTrading Online

Online trading and investing on the Internet has now become a financial phenomenon. It has because so widespread that companies and corporations have devised ways for the lazy suburban civilian to purchase stocks in the comfort of their very own homes. Everything is shared to these individuals from updates regarding the status of your shares to the availability of new stocks. It seems as if the world has become a worldwide marketplace for those who are in the know when it comes to trading online.

Several companies have sprouted from this ensuing demand and have thus made it their business to deal in other people’s business—more specifically, trading and investing. eTrade is an example of one of those companies which enables any person to be able to be part of the online trading community. Because the website offers so many perks and benefits to the meticulous trader, eTrade has become a real world marketplace where shares go up and down as much as the stock market permits. The site offers up-to-the-minute share information on one’s shares, may they be global or otherwise. The website also gives their first-time visitors the choice of having one of three accounts. This will enable you to be able to pick the right type of account in order for you to make it all the way to the top.

Should you choose to avail of the services of eTrade, then you must know first that there are risks to doing this. Because shares have a tendency to go north as much as it could go south. So, one tip for this is for you to simply know how the stock market works. Another thing is that you need to know the exact, real-time information about specific shares that you own as soon as real-time reports regarding your shares hit the news. The website is able to do that efficiently as they are always updating their site with the latest news that may adversely or positively affect share prices.

The company does its transactions very quickly and it is done in a matter of seconds on their secure website. If you have been able to spend any amount of time trading in real life, then you are aware that every second can count when it comes to trading stocks. One of the upsides to the site is that eTrade is able to guarantee you a fast transaction every time.

Before you try out the site, be sure that you know what you are getting into. If you are a beginner in trading stocks, then you might want to look to the simpler sites out there or maybe learn a thing or two more about investing and trading—both online and in real life. There are a lot of information that will be presented to you and you might get overwhelmed if you dive first in this stock market pool before knowing you can barely swim in it. Learn the ropes, try it out and then go sign up.

Posted in Stocks

August 16th, 2007 / No Comments
Advantages and Disadvantages of Going Public

Going public gives companies the chance to reward its investors and attract the needed capital to enable growth. Before deciding to take the company public, there are a number of factors that require careful consideration. The advantages and disadvantages on the management’s part should be weighed to prepare the company for the IPO and to ensure maximum benefits from the process.

The primary advantage that a small business would most likely profit from IPO is access to capital. Capital provided by an IPO is immediately given back to the company, as the only payment that IPO investors usually require is an increase in their investment and possible dividends. There is no need for the capital to be immediately paid back, as there’s also less capital interest. This allows them to use their capital for future needs through new stock or public debt offerings and such expanded capital opportunities.

Another related advantage is that entrepreneurs are able to cash out early in the investment. This is done by selling their equity shares in the open market or as part of IPO. However this may give a bad image to the company, as this indicates that the owners are merely bailing out or jumping ship, thus the IPO would not prove to be a success.

Although there’s really a greater chance for IPOs to increase public awareness for small businesses, leading to new customers and better opportunities. Once they go public, their credibility with the suppliers, customers and lenders is enhanced. Venturing into the IPO process generally gives a perception of success for the company.

Employee compensation, through the offering of shares of stock and stock options, is another benefit for companies going public. Having a public sharing price makes it more convenient for companies to provide employees with a formal stake in the business. This in turn allows employees an incentive to perform well, even becoming part-owners through stock plans to share the success with the company.

Meanwhile, one considerable disadvantage of going public are the costs and time needed in the IPO procedure. The company’s management may be involved in the entire IPO process maybe for as long as two years. Preparation of registration statements, consultations and personal stock marketing are such timely and costly tasks required from the part of the business owner. IPO really is an expensive undertaking, with almost 15 to 20 percent of resources spent on direct expenses. These include money spent for regulatory actions such as legal services, underwriter commissions, accounting services, printing costs, etc.

There is also a loss of confidentiality and control involved in going public. Public companies are required by SEC regulations to handout all operating details to the public, which may include confidential info about marketing plans, profit margins and the likes. When employees and competitors are informed of the inner workings of the company, many number of problems may arise. Outsiders can also takeover the company by paying a high price, as going public gives management less control over the business’ operations.

Posted in Stocks

August 10th, 2007 / No Comments
The Low Down on Stock Indexes

Watching the business news and you seeing how the Dow moves up or down, we tend to get the impression that the Dow Jones Industrial Average is the pulse of the market especially if we do not have a single idea about how corporate business works. We may think that when the Dow goes up, the economy’s okay. Well, not really.

Having a high index number doesn’t mean that the market is doing good. We should instead look at the percentage of change over time, as this gives you the idea of how the index is performing. The index is hurriedly calculated during trading to give investors a sense of direction to the market it represents.

With that in mind, the index reflects “the market it represents” and not “the market” itself. This is because it only reflects a portion of the actual market.

In the United States, there are three different major indexes:

The Dow – The Dow Jones Industrial Average is the oldest and most widely known index. It is also the most quoted index, and it is often mistakenly considered as the market barometer. It currently has only 30 stocks, each representing the most influential companies in the U.S., all having revenues of over $7 billion a year. Among the three major indexes, it is the only one that is price weighted. This means that if a stock’s price changes by a dollar, it has the same effect on the index regardless of the percent change for the stock. For instance, a $1-change for a stock worth $30 has the same effect as a $1-change for a $60-stock. The Dow stocks represent around a quarter of the value of the total market. However, this does not represent small or medium-sized companies at all.

S&P 500 – Finance experts usually refers to S&P 500 as “the market.” This is because it includes 500 of the most widely-traded stocks and leans towards the larger companies. Also, it covers about 70% of the market’s total value, making it much closer to representing the true market compared to the Dow. The S&P 500 uses a market capitalization or market cap weighted index, just like in most major indexes in the world. This gives more importance to larger companies. For example, changes in Microsoft stock would have a greater impact than almost any other stock in the index.

Nasdaq – The Nasdaq Stock Market Composite is composed of more than 5,000 stocks, most of which are for technology stocks as giant technology companies influence the index. Its population include small, speculative companies, making the index more volatile than both the Dow or S&P 500. Nasdaq is not designed to represent the market, but it gives you an idea where technology investors are going.

There are also a number of other indexes that measure larger or smaller sections of the market. However, the major three indexes serve most investors well. Should you want to look at other indexes for comparison, make sure you have an idea how the index is weighted and how stocks are selected.

Posted in Stocks

July 20th, 2007 / No Comments
Profile of a Stock Trader

When you say stock traders, the image of a cluttered trading floor filled with people running around, shouting at each other, some talking in hurried voices, some looking nervously on their computer screen, while others chatted happily with probably one of their investors on their cell phones. My image of a stock trader has often been a man dressed in full business attire that has an aura of sophistication, aggressiveness, and competition.

Technically defined, however, and we arrive at a description of a stock trader referring to either an individual, a group, a firm, or a company whose very nature involves buying and selling stocks or bonds in the financial markets.

Make no mistake about it, stock traders are professionals. Their knowledge about the money market must be encompassing and up to date. They will need to know everything there is to know about investment funds, mutual funds, hedge funds, pension funds, or other equity investments, fund management, and wealth management.

Stock traders have been trained to make quick decisions based on their own evaluation of risks and the present information available. Investors rely on their experience and knowledge to make sound decisions for them. And stock traders usually have huge financial incentives riding on each decision they make.

Decisions need also to be consistent so as to reflect the abilities of a stock trader and gage his full potential as well . Having consistent and satisfactory results is good for the qualifications of a stock trader. It means that the combination of a trader’s gut feel, analytical skills, effort, logic, and ideas are quite good and works perfectly well.

When stock traders fail, there’s no other person or thing to blame but the trader himself. You cannot blame the financial market, the competition, and the investors for the outcome. Stock traders should take responsibilities for their actions. The decisions they made and will make in the future are based on a planned programs or processes.

However, with the growing popularity of online stock trading using the latest stock market software and real-time news services the image that I have of a traditional trader is no more. Today, a new breed of stock traders are slowly advancing at the forefront of the financial markets engaging in different kinds of stock tradings including but not limited to day trading, swing trading, market making, momentum trading, trading the news, and arbitrage.

Not only are the new breeds of stock traders becoming stronger and taking jobs away from the traditional ones, the emergence of another factor in the financial market is beginning to make stock trading companies rethink their trading policies and techniques.

Referring to a new, modern line of individual investors that chose not to take part in the world of staring-at-a-computer-screen day-long l trader’s way of life, the new breed of individual investors are as aggressive as the stock market itself. These investors explore an array of short-term investment strategies on their own and hope that their decisions will pay off in the long run.

Posted in Stocks, Trading

July 20th, 2007 / No Comments