Market Manipulation 101

Market Manipulation

The stock market can be tricky to master due in large part to the factors that can influence stock prices and the market as a whole. Anything from natural disasters to social unrest can impact value and leave investors sitting on significant losses. While this situation is unavoidable to a certain extent, sometimes bad actors seek to manipulate the stock market. There are a few different ways they do this, and this article will explore what these criminals do as well as the things the tell-tale signs of manipulation that investors should know.

What is stock market manipulation?

Before we look into detailed examples of manipulation, we will look at what it looks like and why people attempt to manipulate the market. Market manipulation is the result of an intentional and concerted effort to impact supply and demand in order to profit. More specifically, this change in supply and demand is artificial rather than a natural reaction to current events. This process is not always easy to spot, but there are some well-known tactics of which investors can be aware.

How does stock market manipulation take place?

There are various ways to perpetuate stock market manipulation. This section will look at two of the more common approaches so that our readers can spot potential problem behavior and steer clear.

1. Spoofing/layering the tape

Spoofing, or “layering,” the tape is a manipulation technique where someone places orders for a specific stock without intending to complete the orders. This action shows many pending orders and sometimes convinces other investors that they are coming from a “market whale,” a person or entity with the funding and power to manipulate the value of a stock (or cryptocurrency). Some investors will buy stocks at the same level as the supposed “whales,” assuming that the number of orders will raise market value.

However, before the trade is due to occur, the scammers cancel the order, the market drops, and anyone who purchased will face a loss.

2. Fake news/pump and dump

Fake news and pump and dump manipulation both revolve around pushing a false narrative. The former uses social media or other news sites to release stories that spike or drop the market accordingly. The latter uses email or physical mail to convince many people to invest in a particular stock. In both instances, the high number of orders raises the market, allowing initial investors to sell high, causing the market to crash for everyone else.

How can I spot manipulation?

The best way to be aware of potential market manipulation is to connect with professionals offering expert market analysis, such as those at LeapRate, a trusted voice in the stock market community offering broker reviews and breaking news. Investors interested in making smart investment choices based on natural market fluctuation can work with this type of professional to ensure their decisions reflect the market, not the manipulation.

Readers interested in optimizing investments should keep the information above in mind as they invest. Understanding what common forms of manipulation look like can help investors avoid making costly mistakes based on false supply and demand issues.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.