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The forex market has numerous schemes which can help the traders to gain a good amount of profit in the market. Most of these schemes are directed towards the benefit of the trader and broker alike. It is very important that you have a proper idea about the schemes of the forex market in order to carry out business in a profitable manner. Out of several schemes which presently exist in the market, the pump and dump scheme is based on the principle of benefiting the trader. Let us check out what this team comprises and how it is executed in the forex market.
Defining Pump and Dump scheme
The pump and dump scheme is based on the very basic principle which states that one should buy an asset cheaply and sell it at a higher price. The pump can be described as the unnatural way in which price inflation occurs for a product. Dump can be considered as a natural form of decline in prices which is generated after a huge rise in the prices.
The pump segment is often organized with the help of a menu later or a group of people who are working together with the conspiratorial effort. This will help to accumulate a certain amount of assets at a lower price. Whenever the prices start to increase, the person of the group of people associated with the signal will sell the asset in order to gain the maximum amount of profit.
It is very natural that the seller will want to make more money for himself or herself but in some of the cases, they make use of some wrong or illegal methods to inflate the prices. This can be considered as an essence of manipulation and distinctive fraud in the forex market.
The government officials are quite adept in monitoring the forex and other such markets which can make sure that the Pump and Dump scheme is not a popular trend in the financial markets with centralized means. Even if one wishes to get rich quickly, the scheme cannot be used in the cryptocurrency measures and other stocks from the forex market easily or without regulations.
Execution of the scheme
The manipulator or the organizer of the inter scheme makes The most amount of profit in the entire trade transaction. A very small value of profit is even gained by the traders who are entering the position of the pump and exiting it during the dump phase. It has also been analyzed that the victim traders suffered huge amounts of losses because they have to sell their profits at a very low cost.
The pump and dump scheme can come to help in certain parts of the forex market but it is usually better to avoid it. The scheme is not entirely legal because many of the traders have used it in the past to alter the trends of the market for greater profit values. Moreover, it is one of the ways which are considered to be easy money in the forex market. None of these last for a long time.