Is Stock Market Manipulation Illegal? How to protect yourself?

Is stock market manipulation illegal?

The stock market is one of the ways to grow your money and for the long term. But it can be tricky sometimes. If you are a short-term investor are aware of the stock manipulators out there.

If you choose to buy/sell a stock by observing others, you will be an easy target for a stock market manipulator. But what is Stock Market manipulation? Well, let’s find out.

Stock Market Manipulation refers to interfering with the operation of the market either by creating false inflation or deflation of the price of a security. This is often done for personal gains

Often people manipulate the stock market either to force people into buying or selling their stocks through misleading information. There are many ways to manipulate the stock.

Though it is not easy for regulation boards to detect it as many factors affect stocks and not every factor effect be quantified.

How to manipulate the stock market?

How big players Manipulate the Stock Market? The stock market can be manipulated in different ways. Understanding these Techniques can help to make wise decisions next time someone manipulates the stock market.

 Techniques of Market Manipulation

  1. Fake news: 

One of the easiest ways for stock manipulation is spreading fake news. A Manipulator uses the media to spread fake news about a company or a market, causing buyers or sellers to sell or buy stocks of a company.

  1. Pump and Dump: 

One of the derivatives of fake news is the Pump and Dumb method. It is a way where manipulators buy a large number of stocks of a company suddenly causing the stock price rise (Pump).

This instigates other investors to buy those stocks and then these manipulators sell their stocks (dump).

  1. Poop and Scoop:

This technique is the opposite of Pump and Dump. Hereby, manipulators spread fake information about a company causing stock prices to drop (poop). Then they buy those stocks at lower prices.

  1. Spoofing the Tape: 

Spoofing also known as layering the tape is a method of stock market manipulation. A manipulator places large orders in the market without having any intentions of completing them.

Other investors are tricked by these orders; they think that a huge investment is buying those stocks. And consequently places their orders at the same price.

Seconds before market trades, they pull back their orders causing the market to drop and results in losses for all those who placed their orders.

  1. Wash Trading:

It is a method where a manipulator keeps buying and selling the same stock continuously and instantaneously. This pumps up the volume in the stocks. This attracts other investors and they are fooled again.

Is stock market manipulation illegal?

Stock market manipulation is illegal. Anyone caught in this activity will be punished and has to meet serious civil liability. Market manipulation is prohibited in many countries. In the US it is under Section 9(a)(2) of the Securities Exchange Act of 1934

Manipulators can be convicted by following market manipulation penalties:

  • Fines: They will have to pay very high fines, depending on their level of manipulation.
  • Prison: Sometimes, they can also face imprisonment for at least 5 years.
  • Restitution: They may have to compensate all those who suffered losses because of them.

How to protect yourself from Stock market manipulation?

Well, Market Manipulators often targets short-term investors and uninformed investors. It’s like cheese in a mousetrap Therefore, to survive and sustain itself in the market, remember this moral value: greed is a bad issue.

While investing in a stock market you need to do in-depth research about the company. Analyze the track record of its one-year performance. Moreover, stay away from fake news and rumors. Avoid buying stocks if their price is suddenly roaring. You need to have some trust in the company and become a long-term investor.

Final words

Stock market trading is a risky business there will be some time when you will have to suffer losses. And thus invest only if you are ready to take such risks. To be a successful investor you need to be well-informed, bold and invest in long terms.