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Market Manipulation Strategies Explained

© by Vecteezy

Financial manipulations are a pretty common problem, despite the fact that most of them are considered illegal. What you think is a natural market trend may turn out to be an artificial movement caused by unknown interested parties. As a result, you may lose your money. In this article, we explain how such manipulations work and how to recognize the most frequent of them.

How to spot a manipulation

Manipulations can occur on any market. It doesn’t matter whether you’re trading stocks, currency pairs, or crypto, you just can’t be sure nobody influences that asset’s price. While small manipulations are almost undetectable, huge ones can affect millions of traders at once and cause them to lose literally billions of dollars. Basically, most of manipulations work the same: traders get misleading information while believing it’s true. That includes false statements, fake news, placing unreal orders, and so on.

While you can’t really do about some of the most popular manipulation techniques, others can actually be recognized and even avoided, potentially saving you a lot of money. Let’s check them out.

Pump and dump

The name of this type of market manipulation says it all. Manipulators spread fake recommendations, pumping up the price of some asset they already have invested in. When deluded investors rush to buy that asset, the manipulators wait for the price to reach some high value, then dump their share, causing the price to collapse.

Fake news

This kind of manipulations is often used with the previous one. It’s all about spreading fake news about some company, causing its price to rise or fall quickly. Your defense should be simple: just double-check everything you read or hear before investing in some unknown business.

Spoofing

Spoofing is a term that’s used when manipulators place many huge orders but don’t actually execute them. This way it appears that such market has a lot of sellers and buyers, so real traders join in. Spoofing requires an automated trading system since it’s almost impossible to perform manually.

Front running

While this technique isn’t about actually manipulating the price of an asset, it’s still an unfair and illegal way to earn. Here some insider information is used to buy or sell an asset before the company actually publishes news that can affect its price.

Churning

Churning is a manipulation method used by brokers. They increase trade volume to generate huge commissions for themselves, not profits for you. This can be uncovered by comparing your actual profits and commission sums.