6 ways people manipulate the Financial Markets
The Financial Markets are very broad and flexible. Sadly, many corrupt people and companies, led by greed, take advantage of that and try to manipulate the market for their own benefit. By doing so, many other smaller investors end up losing their precious capital to unscrupulous practices. In other to counter these acts, ensure a fair trade and protect the less powerful, a variety of laws has been enacted in different countries by market regulators. Sometimes, theses crimes can be difficult to spot, but one should always be on the lookout for suspicious activity.
For the record, market manipulation is strictly forbidden in most countries and can lead to severe penalties under the law. However, in the interest of educating its traders against such practices, Tradeo has compiled a list of 6 different ways in which it’s possible to manipulate the Financial Markets. It’s highly advisable for traders to be aware of when such practices are occurring so as to stay away from them and ensure their money’s safety.\
Here are 6 ways through which the Financial Markets and manipulated:
- Bear raid: This is one of the most common moves and involves a high amount of selling or short selling in order to drive the price of an asset down. Naturally this is usually done by companies or very wealthy individuals.
- Pools: Pools involve a group of investors which, through a contract, trade an asset under the management of a single person in order to heavily affect the price of a share or commodity. This is less common nowadays.
- Runs: Spreading rumors about companies can create a lot of buzz to drive the price of a certain stock or option up. This is usually done by companies themselves as they pay agents and media outlets to do so.
- Stock Bashing: Stock bashing is usually the opposite of “Runs” and is used to make the price of an asset plummet. This can be accomplished by spreading false information on many public venues as well.
- Churning: Churning occurs when traders place orders to buy and sell with a low difference between them. This causes the asset’s activity to increase, attract other traders and therefore increase the price.
- Lure and squeeze: This tactic is often employed by companies that are on the verge of bankruptcy, having high debt and accumulated losses over time. As people short sell the company’s shares, price drops considerably to a minimum. Cohorts of the scheme buy the shares back and the company “suddenly” announces it has made a great deal (usually regarding the debt), that will raise the price. In the meantime, people who had short positions will lose as the value of the stock shoots up. Then the cohorts sell their shares with maximum profit and the cycle is repeated.
As seen above, there are many different ways in which people or companies manipulate the Financial Markets. Tradeo has been on the fore of the fight to end these unfair practices and will cooperate with market regulators in order to ensure a safe and fair market. If you know of any companies or people being a part of these schemes, make sure to report them to the local authorities for investigation.