Main Market Manipulation Strategies To Know

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The main types of market manipulation techniques are:

Pump and dump: Inflating an asset's price through false hype, then selling at the peak.
Fake news: Spreading false or misleading information to influence market prices.
Front running: Executing trades based on advance knowledge of large orders.
Spoofing: Placing fake orders to manipulate supply and demand.
Wash trading: Executing trades between colluding parties to create artificial activity.
Stock bashing: Spreading negative rumors to drive an asset’s price down.
Bear raiding: Short selling combined with negative rumors to force a price drop.
Churning: Excessive trading by brokers to generate commissions without benefiting clients.
Cornering the market: Controlling the supply of an asset to manipulate its price.

Market manipulation is the illegal practice of artificially influencing security prices to deceive investors and gain profits. It involves tactics like rigging prices, spreading false information, and creating fake market activity and affects markets like the Forex, crypto, and stock markets. You can find several types of market manipulation techniques, of which the most common ones have been discussed in this article.

Main market manipulation techniques

It is critical to know the different methods fraudsters use to lure investors. This knowledge acts as your shield in an ever-changing marketplace that may not be easy to track. Here are 9 market manipulation techniques to keep an eye on when trading:

Pump and dump

This manipulation tries to increase a stock or security price via fake recommendations. The schemers base these recommendations on misleading, exaggerated, or false statements. Moreover, they already have an established position in a company’s stock. They promote the stock and sell their positions once the buzz leads to a higher share price.

Pump and dump schemes feature spam emails. The emails announce the incredible prospect of a currently unknown company. Victims load up on the said stock and invite others to buy it, bumping the price.

Fake news

Fake news involves spreading false information about a company. The goal is to influence others into taking a specific action. Although this manipulation technique may appear harmless, it carries heavy fines and prison. It is also widespread among retail investors on message boards and chat rooms.

Fake news harms short-term and long-term traders. It can heavily affect the price, even when it is temporary.

Front running

Front running, also called insider information, is among the most well-known market manipulations. It refers to making a financial move based on knowing something not privy to the public. You take action in hopes of profiting once the news becomes public information.

Its label as front running comes from the fact that you buy or sell an asset before a public announcement. Laws against insider information seek to create a fair marketplace for all participants. They do not allow favoring traders with early access to information.

Spoofing

Spoofing occurs when you post large orders without the intention of executing them. The aim is to make it seem like plenty of sellers or buyers are in the market. This false information can influence other investors to sell or buy. The outcome is an unfair profit increase.

This technique uses an algorithm or bots to create a high number of trades. Afterward, the algorithm cancels them before the orders go through. This swift action allows spoofers to manipulate the market.

The manipulators depend on algorithms to put and cancel orders for them. They do not handle the process manually. This technique needs plenty of spoofed orders to move valuations. It is difficult to achieve via manual efforts. As a result, this technique is often prevalent in high-frequency trading (HFT).

Wash trading

Wash traders buy and sell orders that counteract each other. The process does not result in material gains or losses. Wash trading involves making a stock appear more active than it is. This move seeks to lure other traders who notice the increased trade action.

Wash trading's goal is to distort volume figures. It also seeks to influence security prices and attract others into the market. It affects short-term investors like scalpers and day traders. They are vulnerable during the rapid buying and selling processes. Wash trading may have a more negligible effect on long-term investors since it does not last long.

Stock bashing

Stock bashing aims to make the asset price fall via misinformation campaigns. The misleading news lowers confidence in a stock, resulting in its undervaluation. Sometimes, the manipulator may hold a position in the asset that benefits from a price fall.

A stock basher buys the stock at a lower rate after a successful market manipulation. This technique targets smaller company stocks than widely held ones. It is easier to manipulate the smaller targets.

Bear raiding

This manipulation happens when short sellers attempt to push down the security price. A bear raider profits by short selling early. After that, the perpetrator spreads incorrect information in the market. Other people sell or short, causing the price to drop as the manipulator profits.

Bear raiding can occur over weeks or months. It has a more significant impact on longer-term traders. They are vulnerable as they wait for the stock to bounce back from the intense selling pressure. A failed bear raid can also lead to a short squeeze. It happens when the asset price rises. The short sellers repurchase stock to close their positions, creating a short squeeze.

Churning

Churning involves brokers or fund managers. It happens when the brokers boost trade activity to generate commissions for themselves. They trade on behalf of a client. However, they tailor those market actions for their profit rather than for the client. It violates the fiduciary duty of the broker or fund manager.

Cornering the market

Cornering the market occurs when an entity attempts to gain majority control of a stock or asset. The perpetrators seek to use this gain to manipulate that asset or commodity's price. They dictate how much others should pay for it because they have a lot of control.

It takes time to corner the market. Hence, this technique mainly affects longer-term traders. Additionally, meme stocks are often an outcome of cornering the market.

Are market manipulations illegal?

Yes, market manipulation is illegal, and strict regulations are in place to prevent it. However, its detection remains challenging due to subtle tactics and the involvement of multiple participants. Regulators like the SEC actively pursue offenders, relying on federal laws and whistleblowers to identify and combat these practices effectively.

How to avoid market manipulators

David Hawkins once stated, “You cannot do a good job unless you are keen on it yourself.” Keenness is the essential factor you need to avoid market manipulators. It enables you to notice strange shifts in the market. You can then use the alert to guard against false allurements. Below are three primary ways you can use to safeguard against market manipulators:

Do not respond to unexpected price pumps

It is easy and frequent for investors to fall for enticing yet unexpected price pumps. They frequently disappear and reappear to try to manipulate your actions. You can be a victim of spoofing, where you spot giant bids and offers during day trading.

Check sources of information

Always rely on trusted news and analysis platforms for accurate market updates before making trading decisions. Avoid acting on insider tips, regardless of the source, and prioritize verified public information over emotional connections or unconfirmed advice. Trust only reliable and transparent data to guide your trading choices.

Invest according to your own rules

Investing according to your rules is a habit necessary to fight against manipulators. Your investment plan can aid you in avoiding falling for claims that appear too good to be true. You can avoid falling for techniques such as pumps and dumps or washing trading.

Develop a manipulation-resistant mindset

Consider developing the following mental habits:

Think critically. Always question where information comes from and who is sharing it. Be extra dubious of unsolicited tips or notifications. Emotions can mislead. Learn to notice your feelings around price movements. Don't react rashly out of fear or greed.
Adopt a long view. Develop a long-term investment plan and stick to it, despite day-to-day fluctuations that may aim to misdirect you.
Diversify your assets. Spreading investments across different options reduces your exposure if any one market is tampered with.
Keep learning. Stay informed on manipulation tactics. Regularly update your understanding of dynamics and policies.
Self-awareness helps. Recognize your biases and limits. Be honest about your experience level and willingness to assume risk.
Remain skeptical, with reason. Healthy doubt serves you well, especially with prospects that seem too good to be true.
Seek many perspectives. Get a balanced picture by considering varied viewpoints and analyses before deciding. With vigilance and perspective, you can make informed choices despite potential manipulation.

Choose a trustworthy broker

Opt for brokers regulated by esteemed authorities such as the SEC (United States), FCA (United Kingdom), or ASIC (Australia). These organizations enforce strict guidelines to ensure fair trading practices and robust investor protections.

Another strong sign of a trustworthy broker is a high trading volume coupled with substantial liquidity, which indicates their credibility and stability. Below are examples of brokers meeting these standards:

Best trustworthy Forex brokers
	Tradable assets	Min. deposit, $	Investor protection	Max. Regulation Level	Open an account
Plus500	2800	100	€20,000 £85,000 SGD 75,000	Tier-1	Open an account Your capital is at risk.
Pepperstone	1200		£85,000 €20,000 €100,000 (DE)	Tier-1	Open an account Your capital is at risk.
OANDA	129		£85,000 SGD 75,000 $500,000	Tier-1	Open an account Your capital is at risk.
FOREX.com	5500	100	£85,000	Tier-1	Study review
Interactive Brokers	30000		$500,000 £85,000	Tier-1	Open an account Your capital is at risk.

Impact of market manipulation

Market manipulation doesn’t just harm individual traders—it shakes up the entire financial ecosystem.

How investors are affected

False information and manipulated prices can lead to heavy losses.
Many people lose confidence and avoid investing, slowing their financial progress.

Impact on market integrity

Unethical practices and lack of transparency break the trust investors have in markets.
Manipulation disrupts fair trading, making the market less appealing to serious investors.

Challenges for financial institutions

Companies can suffer significant losses and risk damaging their reputation.
Losing client trust and facing legal troubles can disrupt their business operations.

Broader economic impact

Manipulation messes with how money moves through the economy, causing instability.
It weakens trust in financial systems, leading to job cuts and affecting a country’s global competitiveness.

How to spot market manipulation?

Identifying market manipulation requires vigilance and critical analysis. Watch for these key indicators to protect your investments:

Unusual volume and price movement. Sudden spikes or drops without relevant news often indicate artificial influence.
Timing of trades. Frequent trades during market opening or closing may signal manipulative tactics.
Lack of fundamental justification. Price changes unaligned with tangible data or events are red flags.
Unusual order sizes. Large orders quickly canceled or small, strategic orders may be designed to mislead.
Stop-loss hunting. Deliberate price moves to trigger stop-loss orders can cause significant losses.
News timing. Delayed or strategically released information often serves manipulative agendas.

Stay alert and rely on verified data to maintain market integrity and safeguard investments.

Spot market manipulation by keeping an eye on sudden jumps in buy/sell orders that vanish fast

Market manipulation isn’t just about obvious tricks like pump-and-dumps or fake headlines. A sneakier move involves placing big fake orders ("spoofing") to create fake demand. You can spot this by keeping an eye on sudden jumps in buy/sell orders that vanish fast. Use trading tools showing real-time order book details. If large orders appear and disappear near key price points, it could be a manipulation trap designed to provoke impulsive trades.

Another crafty trick is flooding the market with useless orders ("quote stuffing") to cause delays and confuse traders. This happens a lot when the market opens or when big news hits. As a beginner, avoid jumping into trades during these times. Instead, set alerts for unusual trade activity or big price moves and double-check if they’re real or just a ploy to lure you in. These tips can help you trade smarter and avoid getting tricked.

Conclusion

Market manipulation poses significant risks to investors and market integrity. Understanding tactics like spoofing, pump-and-dump schemes, and stop-loss hunting helps you identify and avoid deceptive practices. Stay vigilant, verify information, and work with regulated brokers to safeguard your investments. By following clear rules and informed strategies, you can trade confidently and contribute to a fairer financial market.

FAQs

Why does market manipulation occur?

It happens due to unequal information among investors, where one party has more knowledge than the other.

Is currency manipulation a kind of market manipulation?

Yes, but it often involves governments or central banks, setting it apart from typical market manipulation.

How do risk controls help in market manipulation?

Risk controls limit potential losses by managing position sizes and minimizing exposure to manipulated trades.

Why is market manipulation prevalent in smaller companies or markets?

Smaller companies or markets are easier targets since regulators and participants focus more on larger enterprises.

Team that worked on the article

Mikhail Vnuchkov joined Traders Union as an author in 2020. He began his professional career as a journalist-observer at a small online financial publication, where he covered global economic events and discussed their impact on the segment of financial investment, including investor income. With five years of experience in finance, Mikhail joined Traders Union team, where he is in charge of forming the pool of latest news for traders, who trade stocks, cryptocurrencies, Forex instruments and fixed income.

Learn about our editorial policies

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.

As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.

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