STOCK PRICE MANIPULATION

If one were to invest in the stock market, they should be aware of different ways a third party can intervene in a fair operation and influence the behaviour of the market fraudulently for personal gains. In the world of stock trading, even a small rumour can lead to huge losses. Although manipulation is illegal in most cases, the existence of such manipulation is fairly common.

There are multiple ways to manipulate markets, a few of them being,

Planting fake stories - In this scenario, there is an operator, who could be an individual with lots of money, an organisation, syndication, or even an insider. The operator uses his special team players like a print reporter, blogger or even a news anchor to spread fake rumours and stories, this information is passed around and slowly transforms into breaking news and a well-to-do company’s fate changes overnight. And every player profits.

Another approach is the pump and dump scheme. Here, false and misleading claims are spread regarding the high performance of stocks which are in fact, a truckload of worthless penny stocks. The seller buys a massive amount of stocks at lower rates, increasing the value of the share which thereby attracts more investors. Once the stock skyrockets they sell back all their shares at a profit which also causes prices to plunge back down. This was the scheme that put ‘Wolf of Wall Street’- Jordan Belfort behind bars.

Yet another risky but profitable method is short selling. Shorting a stock is the opposite of buying a stock when one believes that the stock prices are going to fall, here, instead seller buys large amounts of shares when prices are high and sells it back, and gradually, price of the stock decreases and the seller buys it all back up at a much cheaper rate than before!

Wash trading is another shady form of manipulation wherein big players buy and sell shares quickly and continuously. This rapid buying and selling pump up the volume in stocks, attracting investors who are fooled by the rising volume.

Stock market manipulation is a part of the game and it’s important to beware of this while making investment decisions. Markets function only on two human emotions - greed and fear, and operators only have to play with your emotions to make money. Many investors get greedy when they see a spike and before they realise that the spike was an artificial setup, they end up losing tons of money.

The most effective way to protect yourself from these manipulators is to always resort to the fundamentals of the company and invest for the long term.