Stock market manipulation at a glance

Market manipulation creates a deceiving impression about the prices of stocks and other securities and misleads investors and traders. It also impacts the supply and demand and attempts to fluctuate a currency by artificial inflation or deflation.

What is manipulation?

The stock market depends on the news and economic information, and a single piece of news can immediately impact either inflation of the price of stocks or deflation of them.

Some investors carry out stock market manipulation for personal gains, and they may spread such news in the market that leads to an impact on the prices of the securities and, thus, the decisions of other market participants. Even though market manipulation is illegal, identifying and proving it is also a big challenge.

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Manipulation methods

Stock manipulation is one of the most important things to consider when dealing in the market because it has become an essential part of it. Many investors who are not successful in the stock market end up blaming marketing manipulation for their lack of success. On the other hand, investors who have received additional income can think they have gained it because of their knowledge and skills, but most of the time, it is an impact of market manipulation.

There are various ways and methods in which the task of manipulating marketing can be carried out. Let’s take a closer look at some of them below.

Fake news

Compound Annual Growth Rate (CAGR)

As discussed earlier, the impact of news on the stock market is high. So, many people who tend to earn extra income end up manipulating the market by spreading rumors. When the stock market picks them up, the stock prices fluctuate; hence, the one who started the rumors enters the market in the opposite direction to that of other investors.

Pump and dump

The method of pump and dump consists of marketing manipulation by sending fraudulent emails to attract more buyers, which tends to inflate the price of a particular security. When the desired price is achieved, the manipulator ends up selling their stocks again, and the rest of the people are left with that security, and it might lose its value in no time.

Spoofing the order

In spoofing, what happens is that the manipulator has placed an artificial order in bulk in the market. A massive amount of orders increases the price of the securities, and at the last moment, the manipulator ends up withdrawing the order leading to an instant fall in the price of stocks.

Wash trading

Wash trading is a method of stock market manipulation in which a trader keeps buying and selling a particular security. Continuous buying and selling lead to fluctuating the price of the securities that, tempts other market participants to invest in them. Once the manipulator stops doing this, the price tends to fall, causing a loss to those deceived.

Currency manipulation

Currency manipulation is also a kind of market manipulation but on the part of the authorities. Government institutes and central banks are often accused of currency manipulation if they fix the exchange rate or try to influence it less overtly through market transactions.

Many people wonder whether currency manipulation is illegal or legal. Currency manipulation is a political claim, not an unlawful market scam. A currency fixes or floats for various reasons, so allegations of currency manipulation are almost always the result of investor dissatisfaction with trade flows. That is, belief in the existence of currency manipulation is often a subjective opinion.

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Example of currency manipulation claim

To understand the currency manipulation claim, you can refer to this example. If the U.S dollar has weakened, the export of cars from the U.S will also be comparatively less for the countries that invest in such vehicles. This will help the U.S to boost its exports and hence reduce the trade deficit.

What is the GBP?

Another example of the claim could be seen as, in 2019, the People’s Bank of China, for the first time in ten years, set the dollar rate above 7 yuan. Since the Chinese currency appeared to be depreciated due to this setup, the exports from China in dollars appear cheaper.

This strategy was set out after the administration of Trump introduced new tariffs that were associated with Chinese imports, and when the tax went into effect, the yuan rate went top at 7 per dollar. This scenario made the administration of Trump blame China for currency manipulation.

General

You should be careful and vigilant enough to sense market manipulation when trading. In addition, to earn extra income and reduce the risk of loss, it is imperative to know how manipulation methods work. Hence, you should assess the market in the long term and not based on short-term impacts.