Market manipulation deceives investors by manipulating stock prices. Regulators and others may struggle to discover and prove most manipulation is illegal.
More liquid, regularly traded equities are tougher to manipulate. Low-volume penny stocks are easier to manipulate than large-cap corporations with billions in daily activity.
Pump-and-dump tactics boost microcap stock values before dumping them. Denigration to buy a stock inexpensively is rarer than poop-and-scoop. Poop-and-scoop helps short sellers profit from short-and-distort.
Scammers often use illegal trade and marketing or factual misstatements.
Order spoofing involves placing several buy or sell orders to influence the stock price and canceling them once other traders bid or ask. Bond, commodities, and stock order spoofing attracts Wall Street executives and criminal daytraders.
Market Manipulations Tactics
Bear raid: Short sellers decrease a security’s price using false information. Bear raiders profit from early short sales and disinformation. Bear raiders profit from short sales or price drops.Not all short sales are illegal. Short selling causes stock drops, which are sometimes called “bear raids”. Selling and shorting for legitimate reasons, such as a distressed corporation or a dangerous stock, is negative price movement, not a bear attack.In a bear raid, numerous people shorting a stock might cause a short squeeze. Short sellers buy back shares to settle their short bets if the asset price rises, driving the rally. Bear raid failures may hurt stocks.Long-term investors expecting the stock to rebound from significant selling pressure may be affected by bear raids for weeks or months.
Wash trading: Increased transaction activity helps a stock seem more active to attract traders. Wash trading involves losing money on trades. These orders are made hundreds or thousands of times daily to increase stock volume and attract traders.A person may open two accounts and trade between them. Wash trades increase stock volume without benefiting the trader.Wash trading may attract investors, change stock values, or distort activity. Day traders and scalpers are particularly influenced by wash trading owing to its fast buying and selling. Long-term investors may be less impacted as it’s short-lived.
Fake news: Falsifying business news to influence others is illegal. Retail investors use chat rooms and message boards to manipulate markets. While fake news may seem benign, it may lead to jail time.Distribution of false information to produce short squeezes is illegal. Fake news might momentarily hurt long-term and short-term traders.
Spoofing: Placing large orders without meaning to fulfill them. To fool the market into thinking there are numerous buyers or sellers. The spoofer may profit from false information affecting sales.Spoofing impacts security bid/ask volumes. Thus, short-term traders are most affected.
Pump and dump: Spam emails typically promote unknown firms, often penny stocks (see our penny share guide). After stocking up, these email senders try to sell it for more.Pump-and-dump operators may not keep the stock. To sell shares for more, they seek investors. Few stock buyers will profit, and most will lose. After early buyers sell, the stock returns to its prior price or lower.Pump & dumps are frequently targeted by short-term traders, but the company’s potential future may attract long-term investors.