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What Should You Look Out For In Securities Transactions

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Be careful when buying unknown stocks

Find out about companies before you buy their stocks! If you cannot find meaningful information about a stock (or any other financial instrument), extreme caution should be exercised.

In the past few years, many companies have been set up with the sole purpose of getting hold of investors’ money. It is not uncommon for these companies to have a website, but are located in other countries. After their inclusion in stock market trading, the shares are touted and recommended for purchase by stock market letters, spam e-mails, faxes and by persistent telephone sellers. When sales and price rise due to artificially generated demand, the market manipulators sell their blocks of shares. The investors bear the damage.

The open market requires informed and committed investors

The trading segments on the stock exchange are regulated to different degrees. In the open market, lower requirements apply than in the organized market. For example, there are only limited publication obligations there, such as the obligation to publish ad-hoc notifications, which only apply if the security has been included in the open market with the consent of the issuer.

Illiquid securities and investments have particular risks

The stock market price of illiquid, i.e. little traded shares, which are often only listed on the open market, can change rapidly and significantly. This also and especially applies to penny stocks (quoted in the cent range). Penny stocks often lead to herd behavior – for example due to a recommendation in a stock market letter: many investors buy the stock at the same time. As a result, their price soars quickly, only to fall into the abyss a short time later. Selling the shares again is difficult – regardless of the price. Many investors have already lost their money in this way.

Stock market letters: Beware of “hot air”!

Stock market letters reflect the opinion of their authors. How the author came to his assessment, he should prove with comprehensible facts. If there are no such facts and if the author only gives an unsubstantiated, but extremely positive opinion, the alarm bells should ring for you.

Anyone who makes recommendations is obliged to disclose their conflicts of interest. Even if these tips are small print and boring to read: take them seriously. Because if the author himself is trading in the stock or the recommendation was paid by a third party, you cannot expect an independent recommendation. If such a notice is missing, this can be punishable market manipulation.

You should be especially careful if the supposedly good advice is free of charge – or is even sent to you unsolicited. Selfless behavior is rare on the stock market. The senders usually have their own tangible financial interests. You then run the risk of losing your money.

Shares spam: e-mails immediately delete!

A large part of the unsolicited e-mails (spam) sent around the world advertise stocks. It doesn’t matter what is in these emails, their sole purpose is to trick you into buying so the senders can benefit from rising stock market prices. Spam faxes follow the same pattern. Only one thing can help: if you don’t even read the spam, destroy it immediately. Those who follow the recommendations have already lost. Worse still: By buying the advertised shares, you may even be liable to prosecution for attempted insider trading. Also, make sure that you have adequately protected your computer against such unsolicited email. The general rule is: don’t buy anything you don’t understand! This simple basic rule applies to private investors as well as to professionals. The following tips should help you not to fall for rip-offs. With them you also protect yourself against manipulation and fraud.

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