Top Market Manipulation Techniques & How They Work
Introduction
Market manipulation means deliberately controlling the price of an asset – either by artificially raising or lowering its value.
This work is usually done by big players, institutions, or operators – whose goal is to earn profit. In this case, small investors suffer losses.
Market manipulation is illegal, but still many people hide it in different ways.
In this article, we will know in detail what kind of tricks these people use and how you can avoid it.
Is Market Manipulation Legal?
Short answer: Absolutely not.
Regulators like SEBI have made strict rules on it. If someone is caught, he can face:
- Heavy penalty
- Jail or legal case
- Lifetime bans from trading
But the problem is that many people manipulate so smartly that they do not get caught.
That is why it is important for every investor to understand these common manipulation tricks and stay away from them.
1. Pump and Dump Scheme
How does it work?
This trick is most common in small-cap or penny stocks.
1) First operators enter a stock in heavy quantity. Then starts the pump phase:
2) Hype is created on social media
3) Stock name is spread on WhatsApp and Telegram groups
4) Fake news is published like “Company results are excellent”, “New foreign deal signed” etc.
6) When retail investors see that the price is rising fast, they also enter.
After this comes the dump phase – where the operator sells all its shares at a high price. The price falls and small investors are phased out.
2. Spoofing
Understand its logic:
Spoofing is a high-frequency trading (HFT) based trick. In this, the operator places large orders – but does not execute them.
For example:
An operator places a (fake) order of 10,000 shares on the buy side. The market sees that there is more demand and the price starts rising.
The operator sells the shares he has already bought at a higher price and then cancels his fake order. This sends a wrong signal to the market and confuses the investor.
3. Wash Trading
Buying from oneself, selling to oneself
In wash trading, the operator or broker buys and sells shares on their own accounts – so that the volumes look fake.
When the volume increases, it seems that there is more activity in the stock. Retail investors come in this bait.
But in reality there is no new investor – everything belongs to the same group or person.
This technique is also illegal, but it is difficult to prove.
4. Bear Raiding
Trick to earn money in downtrend
In bear raiding, the operator artificially drops a stock so that panic is created.
How?
Negative news spreads and short positions are taken. When the common investor panics, he sells and the price falls further. Then the operator buys at a low price and earns profit. This trick is used more during market crash or in weak stocks.
5. Front Running
Misuse of insider information
In front running, brokers or institutional traders use the information of their clients' large orders and trade first themselves.
As soon as they come to know that a big client is going to buy 1 lakh shares - they buy it first themselves.
When the client's order is executed in the market - the price increases. Then the operator sells and takes the profit.
This is both unethical and illegal.
6. Rumor-Based Manipulation
Fake news uproar
In today's digital age, fake news or rumors have become a very powerful tool to manipulate the market.
Examples:
- "Reliance is going to buy XYZ company"
- "ABC stock is going to be split"
- "The company has won an order of 500 crores"
By spreading such rumors, the price is artificially pushed up - and then sold at the top.
By the time the common investor understands that it was a rumor - the loss has already occurred.
7. Insider Trading
Using insider information
When an insider – such as a company employee, director, or auditor – trades using confidential information, it is called insider trading.
Example:
If someone knows in advance that the company's results are going to be very good – and he invests in the stock – then this is insider trading.
SEBI punishes this, but it is difficult to catch in real-time.
8. Cornering the Market
Supply control to control price
In this trick, an operator buys a major portion of a stock – like 80-90% shares – so that the supply reduces.
Now when other people go to buy that stock – the price automatically goes high because the supply is less.
The operator then sells his shares at a high price – and makes huge profits.
This technique also happens in options and commodities.
9. Painting the Tape
Showing in the market
Painting the tape means to mislead people by increasing the price or volume of the stock through fake trades. Showing the price to be stable with fake buy-sell orders. Showing volume to be high. Making people enter by creating a chart pattern.
This is a psychological manipulation – where the trader feels that real momentum is coming.
How can the common investor escape?
To avoid all these manipulation techniques, follow some simple tips:
- Don't trust everything on social media
- Always check the fundamentals of the company
- Sudden spike in volume or price = suspicious
- Avoid investing in penny stocks
- Stay away from Telegram or WhatsApp tips
- Always use risk management in trading
- Unless you do your own research, it is difficult to survive in the market.
What is SEBI doing?
SEBI has caught many big manipulative cases in the past – like:
- Karvy Stock Broking scam
- Reliance Insider Trading Case
- NSE co-location scam
Nowadays SEBI tracks suspicious trading using data analytics and AI tools. But still, smart players in the market always find a new trick.
Conclusion
Stock market can become a fair place only when every investor is alert.
Market manipulation is a dark reality that cannot be ignored. But if you invest wisely, take research-based decisions, and stay away from greed – then you will not fall into such traps.
Always remember: “Fast money is often fake money.”
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