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Risks Of Online Trading

Aug 18, 2007
There are a few kind of risks that are there when you trade online. The first kind of risk is from the hackers. The first thing the hacker needs to do is to steal your username and password. There are numerous ways in which they can do this. And new ways are being developed all the time. Once they have your username and password they can easily access your account and buy or sell whatever they want to. Exactly the way you do. So this hacker is most likely to sell all the shares that you have accumulated, and with the money he thus receives will but shares on micro-caps.

What are micro-caps? Also known as penny stocks these are thinly traded stocks. What the hackers do is by buying shares of that micro-cap with your money he drives up the price for the particular share. Once the price is quite high he sells his own holdings at a considerable profit. The money is then wired to an account in a different country or a series of straw men and dummy corporations are used to transfer it to their account.

Also internet provides a great opportunity to manipulate stocks which are unheard of and have very light trading. Say a broker wants people to trade on a particular stock. For people to trade on a stock, they must know about it, and then they must be made to understand there will be a definite positive gain in trading on that stock. What the broker will do is start a thread on that stock. Most discussion forums and threads in them allow the same person to post innumerable messages under different aliases.

So the broker will create n number of aliases for himself and post messages about the particular stock. The text of the message would of course be favorable toward that stock now with so much discussion about a particular stock and most of it being positive, investors will get interested.

They have no way to find out that it is the same broker who has been posting all the messages under various aliases. Rising interest transforms to rise in activity on the trade of that stock. A stock is manipulated. A similar thing can be done by the PR executive of the company or a large shareholder of the stock. This is a definite abuse of the internet.
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