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What is Market Manipulation?
Market manipulation refers to a deliberate attempt to artificially inflate or deflate the price or market for a product, security, or commodity. Essentially, market manipulation schemes trick investors by either controlling the market or giving a false picture of its trends. A company, group, or individual typically manipulates the market to make or boost profits.
Market manipulation is illegal in most cases.
For an example of a legal but potentially unethical form of market manipulation, check out our article on OPEC and its role in the oil market.
A Deeper Dive into Market Manipulation
Market manipulators try to influence a market, product, security, or commodity so that it differs from the true price. When the market price is under-or overvalued in relation to the true price, manipulators can exploit the difference through methods such as arbitrage (simultaneously purchasing and selling identical security, commodity, or currency, across two different markets).
Market manipulation, at its core, is deception.
The manipulator tricks other market participants into thinking the manipulated price is the true price. Market manipulation does not necessarily involve spreading factually false statements. It does, however, always entail an attempt to influence prices in order to create false impressions for other market participants.
Because market manipulators create and later reverse false pricing, they harm market efficiency and unknowing investors.
The Difficulties of Regulating and Manipulating Markets
In truth, regulators and manipulators both face difficulties in achieving their respective goals.
For regulators and other authorities, it can often be hard to detect and pinpoint market manipulation. Many variables naturally affect markets, and some are not precisely quantifiable. Thus, going through countless factors and picking out artificial ones prove difficult for regulators.
Manipulators face difficulties when the size and number of participants in a market grow. That’s why manipulating the share price of small companies (e.g. penny stocks) is much easier than the share price of large companies. Furthermore, market participants tend not to monitor small businesses as closely as they do medium and large companies.
The Zero Theft community has thoroughly researched potentially rigged areas of the economy and have come up with an accurate estimate of how much is being ripped off from the public. Take part in creating an economy that gives you the value you deserve.
Market Manipulation Methods
Many different market manipulation methods exist, but they’re often coupled with spreading false information through online channels, forums, discussion boards, etc. investors use. The dual forces of disinformation and illusory changes in the market can encourage or pressure traders to buy/sell an investment.
The two most common (and oddly named) types of market manipulation are:
- Pump and Dump
- Poop and Scoop
Pump and Dump
Pump and dump involve the artificial inflation of security prices and generally function as one part of a grander market manipulation scheme.
Manipulators (often stock promoters) strike a deal with company affiliates and large position non-affiliates. The promoter gets the word out on security in exchange for shareholders to release some stocks into a free trading status.
The manipulator then executes the ‘pump.’ They send out an email blast full of false information on the company’s stock to millions of non-professional investors. In other words, those who invest primarily in just their retirement funds and maybe have some but not extensive knowledge of the stock market. The manipulator hopes that the release of the shares and the deceitful email will convince investors to drive up the price of the stock and volume to higher points.
If they manage to accomplish both, the promoter ‘dumps’ their shares, selling off their shares at an artificially high price. The stock price falls, leaving those who got duped with an overvalued investment.
Poop and Scoop
The poop and scoop technique is essentially the opposite of the pump and dump. Market manipulation artificially deflates the prices of a stock. It does not get used as frequently as the pump and dump because it is difficult to damage the reputation of a good company so you can tank its value.
The ‘poop’ refers to the deflated prices of the stocks, and the ‘scoop’ to the manipulator buying up the undervalued shares. When the stock price rises, the manipulator comes out with a handsome profit.
Other Market Manipulation Examples
Beyond those two types of market manipulation, many more strategies exist. We’ll cover some other slightly less common schemes.
Price fixing refers to a simple market manipulation scheme where competing businesses work together to artificially set prices, for example. Price fixing has allegedly occurred on a global scale in the past, with the LIBOR scandal.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.