GLOSSARY // Market Structure
Pump and Dump
A pump and dump is illegal market manipulation: promoters accumulate a thinly traded stock, inflate the price with coordinated hype and misleading claims, then sell their shares into the buying they created, leaving late buyers with a collapsing stock. It violates federal securities law, and the SEC and DOJ prosecute both the promoters and, increasingly, paid influencers who tout without disclosing compensation.
The scheme needs a thin market to work, which is why it concentrates in micro caps, low-float names, and small crypto tokens — a few hundred thousand dollars of buying can move a $10 million company 100% in a day. Modern pumps run through chat rooms, social media threads, and paid newsletters rather than the boiler-room phone calls of the 1990s, but the shape is identical: volume explodes, the story arrives after the price move, and insiders are selling the whole way up.
A shell company trades at $0.50 on 20,000 shares a day. Promoters who bought millions of shares launch a coordinated social media campaign about a fake partnership; volume jumps to 8 million shares and the price hits $2.10 in three days. The promoters unload into that liquidity, the buying stops, and within two weeks the stock is back at $0.35 — an 83% loss for anyone who bought the top of a move that was never real.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.