10 Terrifying Scams Lurking in the Indian Stock Market

This scam involves artificially inflating the price of a stock by spreading false information or recommendations. Fraudsters buy a large number of shares at a low price and then promote the stock to unsuspecting investors. Once the price rises due to increased demand, the fraudsters sell their shares, causing the price to plummet, and leaving other investors with significant losses.

Insider trading occurs when individuals with access to confidential information about a company trade its stocks based on that information. This illegal practice gives insiders an unfair advantage and undermines the integrity of the market.

Ponzi schemes lure investors by promising high returns with little or no risk. The scammer uses funds from new investors to pay returns to earlier investors, creating the illusion of a profitable investment. Eventually, when new investors dry up, the scheme collapses, leaving most investors with significant losses.

Fraudsters posing as financial experts or investment advisors offer stock tips or advisory services for a fee. They claim to have insider information or a secret strategy to make profitable trades. In reality, they provide misleading or worthless advice, leading to losses for investors.

Fraudsters create fictitious companies, issue shares, and promote them to the public. These phantom companies have no real operations or assets, and their sole purpose is to scam investors by artificially inflating the stock price. Once the fraudsters have profited from selling their shares, they disappear, leaving investors with worthless stocks.

Churning involves excessive trading in a client's account by a broker to generate commissions. The broker buys and sells stocks frequently, regardless of the client's investment goals or interests, with the intention of profiting from the increased trading activity. This practice often leads to substantial transaction costs and erodes the client's investment returns.

Front-running occurs when a broker or insider trades securities based on advance knowledge of pending orders from their clients or company. By placing their own trades ahead of the client's orders, they can take advantage of price movements and make profits at the expense of their clients.

Margin trading allows investors to trade stocks with borrowed funds. In some cases, unscrupulous brokers or firms manipulate the margin trading process by providing excessive leverage, charging exorbitant interest rates, or misrepresenting the risks involved. This can lead to significant losses for investors who are not fully aware of the risks and intricacies of margin trading.

Stock market manipulation involves artificially influencing stock prices through fraudulent practices. Manipulators may engage in activities such as spreading false rumors, creating fake orders to create the illusion of demand or supply, or engaging in wash trading (simultaneously buying and selling stocks to create false trading volume).

Promoter fraud occurs when company promoters or insiders manipulate financial statements, misrepresent the company's performance or prospects, or conceal material information from investors. This can mislead investors into making investment decisions based on false or incomplete information, leading to financial losses.

It is crucial for investors to be aware of these scams and exercise caution while investing in the stock market. Conducting thorough research, seeking advice from reputable financial professionals, and maintaining a skeptical mindset can help protect against falling victim to such scams.