In light of recent events, this week’s article focuses on ‘pumping and dumping’, a problem that can easily lead to quick losses on Football Index if you’re not careful.
The ninth edition of the Unofficial Football Index Weekly magazine titled ‘Beware of the Pump and Dump’ is out now and can be viewed in full via Twitter @ FI_WeeklyMag.
Football Index Weekly Magazine has tried to avoid being too focused on, well, Football Index.
Of course, this magazine has sprung from the platform and is aimed at those who use it, but it is also meant to be a magazine that even the casual football fan can enjoy.
The articles discuss football topics with enough nuggets of information that are interesting to traders, but not too overbearing should someone oblivious to Football Index stumble across it and start reading.
Hopefully, we’ve been able to find that happy medium in the first 8 issues. This week feels like the need for an exception; this is a very Football Index-centred piece, discussing ‘pumping and dumping’.
What is pumping and dumping?
Pump and dump is an age-old fraud within the trading market.
People will identify a low-cost share and purchase it in high quantities, artificially increasing the market.
Alongside this, they will share false and misleading positive statements about the share, encouraging others to purchase too at a ‘bargain price’.
As others get on board, drawn in by this misinformation, excited by the prospect of ‘getting in early’ to make a big and quick profit, and fearing missing out as the price rises, they purchase at a higher price than those who initiated the pump.
With the price now even higher given the new traders who have jumped on, the original pumpers mass sell their shares at the inflated price.
They walk away with a tidy profit, whilst everyone else sits there with stock that is essentially worthless.
Can you give an example of a pump and dump in Football Index?
Imagine a player is valued at 20p. User A may buy 9000 shares in the player, taking his price to 30p (900 shares to move 1p).
His average cost would, therefore, be 25p. With the player’s name now appearing in the trending list, along with false information being shared online, User B buys 1800 shares, taking the price to 32p (average 31p).
Users C, D and E do the same, buying on average at 33p, 35p and 37p, taking the price of the player to 38p. User A, seeing the price now up to 38p, mass sells all 9000 of his shares.
This may be easy for him too, either through low spread instant selling or with others still jumping on and buying. All 9000 sell at an average price of 33p. With FI’s commission at 2%, and a minimum of 1p,
User A walks away with 32p per share; a 7p increase on his original price and £630 profit across the 9000 shares.
Unfortunately, this drops the price of the player to 28p, meaning Users B, C, D and E are between 3p and 9p down per share.
With no one else buying the player – because, in actual fact, he was never a good trade – coupled with others who are now panic instant selling to try to avoid the crash, which could push the price even lower – these traders are now left at a loss with little chance of recovering their money.
Why do people pump and dump?
Because it’s an ‘easy’ way to make money. They are gambling on people’s emotions and greed: people
have a fear of missing out and get greedy thinking they can get in early enough to make a big profit. They, therefore, don’t think rationally before purchasing, ending up stung.
So if it’s easy, why shouldn’t I start doing it?
There are 3 main reasons we would strongly suggest you avoid this.
Firstly, you could get stung yourself.
If people catch on to the pump and dump – it doesn’t take a genius to spot one, aside from having such an excellent community of FI fans on Twitter who call people out – they will avoid at a loss with the commission you would lose off the sale.
Secondly, Football Index themselves may get involved and ban your account.
It is fraudulent, and such suspicious activity is easily spotted. Even if they don’t close your account, they may vastly increase the spread of the Instant Sell, putting you at even more of a loss when you’re stuck with a player you no longer want.
And lastly, it can damage the growth of the platform.
Those most likely to fall for the pump and dump are new users to the platform. If they get stung in this way – unaware of what’s really going on – they are far more likely to withdraw all their money and stay away from the platform altogether, telling others that the whole thing is a scam.
This would mean negative publicity for Football Index and fewer users; making things harder for everyone who is trading.
There’s also a fourth reason: it’s simply a bit of a shitty thing to do.FI Weekly Magazine
How can I avoid the pump and dump?
We’ve put a few ways that you can avoid a pump in the box to the left. But the golden rule is to avoid making rash decisions and only trade when you are confident.
The stock market is a device for transferring money from the impatient to the patient.Warren Buffett
Don’t let others take your money so easily.