What is a pump and dump?
A pump and dump has two stages. In the “pump”, a group spreads false or exaggerated news about a share or coin: “a big order is coming”, “a foreign company will buy it”, “the price doubles from tomorrow”. Often they also trade among themselves to make it look as if demand has suddenly jumped.
In the “dump”, while the price is climbing and ordinary investors are rushing to buy, the group quietly sells its own shares. The promotion stops, buying dries up and the price falls fast. Those who bought high are left holding shares worth much less.
Say a post appears late at night in a messaging group: “Buy this share tomorrow morning, inside news, double in a week.” The group has thousands of members. In the morning, with so many buying at once, the price really does rise, and seeing that, more people buy. But whoever posted had already bought cheaply, and is selling at exactly these higher prices. The story is made up.
Why it matters to an investor
- A rising price is not proof the company got better: with no change in earnings or business, artificial demand can still make the price jump.
- Learning to ask who is giving the “tip” and why: whoever already owns the share profits when you buy.
- Small, thinly traded shares are most exposed: a little money can move their price, and finding a buyer when you want to sell can be hard.
- It is illegal: Bangladesh’s securities law punishes price manipulation and spreading rumours, and getting drawn in, even unknowingly, is risky.
Where it shows up most
Shares with a small total market value, a small free float (shares actually available to trade) and thin daily trading are the easiest to pump. When there is little reliable information about a company, rumours are more believable. In crypto, especially new and small coins, the same trick appears even more openly, because oversight is weaker.
Today the promotion runs mostly through Facebook pages, messaging-app groups, YouTube and paid “signal” services. When a group has many members all saying the same thing, the news feels true, even though it comes from a single source.
What the regulator has done in Bangladesh
The stock-market regulator, BSEC (Bangladesh Securities and Exchange Commission), has said that spreading rumours about share prices on social media is punishable under securities law. According to Prothom Alo, in May 2021 BSEC formed an investigation committee to identify people spreading rumours through pseudonymous Facebook and WhatsApp groups. The Daily Star later reported that, on the committee’s recommendation and with BTRC’s help, 31 Facebook pages were shut down.
Even when the regulator acts, it usually comes after the damage, and it does not return the money of those who bought high. So your own protection lies in the habit of asking questions.
Signs to recognise
- “Buy now”, “last chance today”: urgent calls to buy.
- Claims of “inside news” or a “guaranteed target price” that do not appear in the company’s published disclosures.
- Price and trading volume suddenly shooting up over a few days with no real news.
- Promotion suddenly going quiet, followed by a sharp fall.
Worked example
- A group quietly buys a small company’s shares at Tk 20. Then the “inside news” starts circulating in groups.
- Over a few weeks the price climbs to Tk 50. Mitu buys 1,000 shares at Tk 48: a cost of Tk 48,000. This is exactly when the group sells its shares.
- The promotion stops and the price falls to Tk 22. Mitu’s shares are now worth Tk 22,000.
Result: Mitu has lost Tk 26,000, more than 50% of what she put in, while the group made roughly Tk 25–30 a share. Here one side’s profit comes straight out of the other’s loss. The numbers are only an example.
Common mistakes
- Thinking “the price is rising, so the news must be true”. The group’s own trading pushes the price up too.
- Thinking “I’ll just take a small profit and get out”. You don’t know when the group will sell; they do.
- Trusting a group because of its member count or “profit screenshots”. Both are easy to fake.
- Buying on rumour alone without looking at what the company itself has published (financial statements, DSE announcements).
When someone hurries you to buy a share or coin, first ask: what does that person gain if I buy?