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What Is P&D, Its Impact on the Stock Market, and How to Avoid It?

P&D aka pump and dump is a stock market term that is popular to describe the practice of buying a particular stock (pump), and then promoting the stock to people to buy it.


The stocks targeted by P&D practices are usually those with a small market cap.


Dirty Trick of P&D


Stock P&D is often done by unscrupulous influencers with a significant number of followers on social media.


Without a capital market professional certificate and license from the authorities, they deliberately conduct stock P&D for personal gain.


This is what distinguishes stock P&D from stock picks done by a professional and licensed securities analyst.


Impact on Price Movement


Once the influencer has successfully created a positive sentiment from the disinformation surrounding P&D stock, affected followers will flock to buy that stock.


The overbought condition is an opportunity for the influencer to sell stock (dump) and reap capital gains.


The stock price is then likely to fall. Investors who previously bought at high prices will suffer losses due to pseudo-trading.


P&D graphic
Image source: livingfromtrading.com

Classified as a Crime


Indonesia Law No. 8/1995 about Capital Market also regulates the prohibition of all forms of fraud and market manipulation.


Stock P&D includes the act of benefiting oneself through making statements that are not in accordance with material facts and creating a false / misleading picture regarding trading activities, market conditions, and securities prices.


The perpetrator is punishable by a maximum imprisonment of 10 years and a maximum fine of IDR 15 billion.


Tips to Avoid Stock P&D


  1. Don't buy stocks because of FOMO (fear of missing out). That penny stock that's suddenly all the rage on social media is probably a P&D stock!

  2. Choose reliable sources of stock recommendations, both free and paid (such as financial media, investment communities, independent analysts, OLT platforms, etc.).

  3. Deepen your fundamental and technical analysis skills. The results of personal analysis can strengthen the validity of the recommendations.


 

Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).



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