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• Phony companies or organizations set up by criminals as fronts to offer securities such as stocks or bonds to unsuspecting buyers.
• Illegal insider trading, which is the practice of covert buying or selling securities based on privileged inside information on a company.
• Price manipulation of a security by a criminal individual or organization through hype or extortion in order to move the price to a favorable direction (practices such as pump and dump, or bait and switch).
• Companies hiding important facts or making untrue claims about their operations or their prospects to attract unsuspecting investors.

These are just a tiny sample of the types of fraud that the markets and the investors must deal with. Thanks to the regulatory procedures many of these are stopped or prevented from happening altogether.

The Financial Instruments

Financial instruments are certificates of direct or indirect ownership that can be bought and sold openly in their appropriate markets. The financial markets basically operate like auction markets. Supply and demand as well as emotional factors (which affect demand) drive the market prices for these instruments. In this book we will cover bonds, futures, stocks, options, and mutual funds.Most of the investment and trading in the US involves these instruments (generally mutual funds are not marketable instruments, but they deserve attention as popular investment tools). We will give special attention to stocks and stock options, since these are more readily available to the general investor with little money to invest and are widely used by just about all investors. …