Click here to check the ultimate guide to learn how to leverage your PC and internet to make money online.
The Washington Independent
The Washington Independent

What is market manipulation?

What is market manipulation?

Psychologically speaking, manipulation is a form of social control that uses indirect, misleading, or underhanded techniques to alter the behavior or opinion of others.

Thomas Dixon
Finance
May 25, 2021

Table of Contents

“The market is manipulated by big sharks.”

“The price isn’t moving when it should be.” 

And a lot more. That’s how people on the internet speak about stock manipulation or market manipulation. But, what is it, really? 

What is manipulation?

Psychologically speaking, manipulation is a form of social control that uses indirect, misleading, or underhanded techniques to alter the behavior or opinion of others. Such tactics could be called exploitative and devious since they further the manipulator's objectives at the cost of others. 

Manipulation is not just done mentally. In fact, there are a couple of instances right now where you can see manipulation. People on the internet speculate that the stock market is being manipulated by other investors or traders. The same goes for the crypto market. While we don’t have concrete information to support that, we do have a couple of information that discusses if it really exists and how the market is manipulated. 

Does market manipulation exist?

In February 2021, the law firm Hagens Berman launched a class-action complaint charging market manipulation against one of the primary instigators on the Reddit list.

Three forms of market abuse are prohibited by the Securities Act of 1934 and the Commodities Exchange Act: spreading false information, speculative trading, and manipulating prices. 

So, if you’re wondering whether market manipulation exists, yes is the answer and it’s done in three ways according to this security act. 

Spreading False Information

Based on whether they want to sell or buy, fraudsters can spread rumors to inflate or deflate stock prices. Spreading gossip and disinformation is easy with social networking, chat rooms, spam promotions, and fake newsletters.

Speculative Trading

Fictitious trades are phony trades that are used to create the illusion of production or market movement. There is no shift of control of fictitious transactions, and the broker is not exposed to any financial harm. Fictitious trading is described as placing a large quantity of buy or sell orders and then suspending them.

Manipulation of Prices

Big or high quantities of transactions may be used in market fixing strategies to lift or lower costs. Inactive shell firms with licensed securities may also be purchased by fraudsters. They then use a sequence of bogus trades to inflate the worth of the shares. 

How does market manipulation work?

There are a few popular market manipulation schemes, but there are an infinite number of varieties such as these: 

Washed trades and matched orders

Wash transactions and matched orders are examples of fictitious trading. Wash trades are bought and sell orders placed by the same group for the same amount of shares and at the same price. There is no transfer of ownership, and the trader faces no financial risk. Pre-arranged deals between a buyer and a seller for a certain number of shares at a certain price are known as matched orders.

Layering/spoofing

Spoofing is a type of fictitious trading as well. Spoofing is the practice of putting in a large number of buy or sell orders and then canceling them before they are fulfilled. JP Morgan Chase was fined $920 million by the Commodity Futures Trading Commission (CFTC) in 2020 for putting hundreds and thousands of commodity futures orders with the purpose of canceling them before execution in order to manipulate prices over an eight-year period. 

Pump and Dump

The most popular strategies that explicitly entrap the average investor are pump and dumps. They include penny stocks, which are small companies with over-the-counter shares (OTC). Companies that trade on the over-the-counter market (OTC) do not have to comply with the stringent listing standards of a stock exchange such as the NYSE or Nasdaq. Microcaps are popular among fraudsters because there is typically little public information about the company and it is easier for them to seize control of the stock.

When fraudsters gain ownership of a company's stock, they launch a concerted initiative to boost or "pump" it. To spread disinformation and build demand, the scheme uses social media, newsletters, bogus analyst reports, fake trades, and telemarketing. The fraudsters sell their shares after the company's stock has been inflated. When the event ends, the stock price drops, leaving legitimate investors with worthless stock.

Marking the close

The practice of marking the close is an elevated trading strategy. At the close of the day, a large number of trades are executed, falsely inflating the stock's closing price. Over a 6-month stretch, the Securities and Exchange Commission fined trading company Athena Capital $1 million for deliberately putting large quantities of trades in thousands of Nasdaq shares over the last two seconds of the session.

Is mark manipulation bad?

Manipulation is unlawful in most cases, but in some cases, such as with omnibus accounts, it can be hard for regulators and other agencies to identify. Unfortunately, market manipulation strategies deceive investors every day, leaving them with no redress. Market manipulation fraud is systematically identified and prevented by the SEC Office of Market Intelligence, the US Department of Justice, the CFTC, and other agencies.

Can you avoid stock manipulation?

The best security is easy precautions you can take before investing your money and so you can effectively avoid stock manipulation. Here are some tips to avoid manipulation in the market. 

Unsolicited investment offers and stock recommendations sent by email, social media, or the internet should be regarded with caution. Telemarketing and the U.S. post are also used by scammers to spread their schemes.

Use FINRA's broker check or the SEC's Investment Adviser Public Disclosure method to look into the origins of any investment recommendation. It's a red flag if they aren't licensed. Don't take a promoter's word for it if they've been suggested to you by anyone you know. Celebrity endorsements aren't always trustworthy.

Fraudulent schemes are often promoted by newsletters. Be cautious of them. Look up those involved with the newsletter on SEC.gov to see if any steps have been taken against them.

Microcap and OTC shares carry a higher chance of being hacked. If you'd like to invest, look for routine SEC filings in the SEC Edgar database. Stocks with no daily filings should be avoided. See if the firm is included on the SEC's list of trading halts.

High-return promises and sales incentives to move quickly are also red flags. Remove yourself from the situation.

Thomas Dixon | He creates the ideal marketing experience by connecting online brands with their target audiences. He recently completed a research paper on consumer conversion and took part in a community project on SEO optimization. Thomas is working on his Bachelor of Arts in Communications and plans to intern in an online marketing department soon.

Related

How to Choose Your Governance Platform Development

The new phenomenon, platform economy, has relatively witnessed massive popularity recently. A burgeoning number of industries have started adopting this business model in addition to other digital strategies and best practices to stay competitive and relevant. By that definition, do you even think about why this shift is a big deal to your business?

Why You Need a Cross-Chain Support: A Direct Explanation

Do you ever wonder if integrating a cross-chain can be ever used for your business? Well, with this exchange bridge, your information can be used between two comparatively free chains and systems. That means it enables your chains to work together with others for more convenience.

The 5 best online casinos in the USA right now

Since their inception in the 1990s, online casinos have grown to become one of the most popular online activities in the world. With the COVID-19 pandemic last year, and people all over the globe staying home and complying with lockdowns and health protocols, traditional land-based gambling facilities were forced to close doors and shut down physical operations.

Keep Up With Financial Trends & Practices As An Average Citizen

The average person may or may not be inclined to focus on their financial planning outside of their monthly budgets and certain plans for the future.

How to Find a Web Dev for Your Startup

Creating a startup is a cumbersome goal. But if done right, your idea may pay off greatly and even surpass your expectations. The majority of the most successful startups are tech ones, so there is no wonder that software developers are in such demand here.

How US Forex Traders Can Select Best Trading Platform?

If you are an investor interested in foreign currencies but you don't have the funds to trade them on your own, you can try a US Forex brokerage. A broker can offer a variety of investment opportunities, including stocks, mutual funds, options, and futures. The US government requires that US brokers must offer no-hedging accounts, otherwise, they may be subject to fines. However, a US Forex broker can offer several different account types.

The legalization of sports betting in the US keeps moving forward

The legalization of sports betting activities in the United States has been a heated topic of discussion lately as laws keep evolving to embrace emerging consumer trends. So far, 29 states plus the District of Columbia have fully legalized this activity while 3 states are still working on the last details of their local regulations to give operators the green light.

Tips And Tricks to Become a Successful Financial Writer

As writing, in general, can’t stop surprising with how many people are joining the industry, there is no doubt that financial writers will do just fine in the future. Regardless of the niche and type of writing, it has become globally accepted and many individuals would like to test their skills in it.

Benefits of Title Loans

Title loans are usually taken on cars and other vehicles. Title loans are loans that you take in exchange for putting your car as collateral. If a person cannot repay the loan in the given time slot, the lender can legally seize the vehicle.

How Does the Washington Lottery Compare to Other Big Lotteries?

Lots of us love playing the lottery, and for good reason. It’s one of the few widely accepted forms of gambling that lets you put down a small amount of cash with the potential to win a life-changing amount of money.

Tips for Improving Your Financial Wellness

Learning how to manage your money is an important skill to have, but that doesn’t mean it will be easy. Even if it seems stressful or intimidating, taking it one step at a time will help you gain peace of mind and a better financial situation.

© Copyright 2021 The Washington Independent All Rights Reserved

Terms & Privacy | twi.news@washingtonindependent.com

Click here to check the ultimate guide to learn how to leverage your PC and internet to make money online.