Pump and dump is a manipulative scheme that occurs in the stock market, driven by individuals or groups with the intention of artificially inflating the price of a stock or other asset and then quickly selling off their holdings to profit from the resulting price increase. This practice is unethical and often illegal, as it deceives other investors and distorts the true market value of the asset.

In a typical pump and dump scenario, the perpetrators first accumulate a substantial amount of the target stock at a relatively low price. They then create a buzz around the stock through false or exaggerated claims, online forums, social media, and even misleading news. This orchestrated hype leads other investors to believe that the stock has significant potential for growth.

As more investors are drawn in and start buying the stock, its price starts to rise rapidly due to increased demand. This is the "pump" phase, during which the perpetrators continue to encourage buying, causing the price to surge to unsustainable levels that are far from its intrinsic value.

Once the price has been artificially inflated to a desirable level, the manipulators execute the "dump" phase. They sell off their holdings, flooding the market with the asset and causing its price to plummet. Unsuspecting investors who bought during the pump phase are left with overvalued assets that have now drastically decreased in value, resulting in substantial losses for them.

Regulatory authorities, such as the Securities and Exchange Commission (SEC) in the United States, actively monitor and take action against pump and dump schemes as they undermine market integrity and investor trust. Investors are advised to be cautious of sudden, unsupported price spikes and to thoroughly research any investment opportunity before committing funds.

A pump and dump in the stock market is a market manipulation scheme where the price of a stock is artificially inflated (“pumped”) through misleading statements, false hype, or coordinated buying. Once the price rises sharply, the manipulators sell (“dump”) their holdings at the inflated value, securing large profits. After the sell-off, the stock price typically crashes, leaving unsuspecting investors with significant losses. Pump and dump schemes often target low-volume, penny stocks because they are easier to manipulate. These activities are illegal in most markets and monitored by regulators like the SEC. Traders can protect themselves by avoiding suspicious, hype-driven stocks and conducting proper research before investing, especially when price moves seem disconnected from a company’s fundamentals.