"Penny stocks", also known as small-cap stocks will generally have low value. They are highly volatile and can fetch good returns. At the same time they are very risky. They can go up anyway from 25 cents to $20 and sometime go down drastically so low that it becomes worthless. These stocks are highly unpredictable in nature.

Scammers in the stock market normally choose penny stocks to manipulate and dupe people. As these stocks are highly volatile even general public will fall prey to penny stock scams. Let's see some of the penny stock scam and scammer's mode of operation.

One of the ill famous penny stock scam is Pump and Dump. In this, scammers (generally speculators) buy huge numbers of penny stock shares and spread good news about the stock in news paper, press release, financial report etc.

The rumor spread will be so tempting that many traders fall prey to such rumors and start buying that penny stock share. This sudden demand surges the price of the penny stock exorbitantly. Once scammers sell their portion of penny stocks, the market crashes and the penny stock becomes worthless or reverts back to normal price.

The opposite of the Pump and Dump scam is the Poop and Scoop. Here the scammers spread negative rumors about the penny stock so that traders indulge in panic selling. This brings down the penny stock value drastically. Once it reaches the lowest level they buy the stocks and at a later date they spread positive rumor which makes the stock price to surge. When stock price goes up, they sell and make profit.

You need to watch out for any insider trading, front running and circular trading happening in the market. These people will literally manipulate the market and make money at your cost.

Although, there are regulatory boards like SEC - Securities and Exchange Commission who are constantly monitoring to check any such stock scams, traders also need to be very cautious.

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