How does stock market manipulation work?
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- Updated On:23-Jun-2021
- Replies:1
Short Answer
Stock market manipulation is pumping the stock valuation by spreading false information about the company through several media channels and other publications. It's where the valuation rises, and then investors pounce on the opportunity to invest in the company.
However, the person or company that might have started this starts to dump their stocks when it reaches an all-time high booking their profits. It then causes a domino effect that causes huge losses to the investors and devaluation of the particular company.
Detailed Answer
The stock market are primarily run by traders, investors and companies invested in the stock market. However, the volume of trades and the number of shares being circulated at any given time inflict changes in the stock market. If you look at the current scenario as to how the prices are determined, then mutual funds, hedge funds, and other huge investors in the stock market have some grip over the stock market's volatility. At the same time, most of the changes are incurred by the companies, economic trends, retail investors and traders and so on.
With that being said, daily, the given economic trends and changes in the market could affect the stock market prices and the direction of the trend. However, when you look at other stocks that aren't even in the limelight coming to rise, there might be something behind it. however, for the exponential growth of some of these stocks, there might be the factor of stock market manipulation.
What is stock market manipulation?
Stock market manipulation is the pumping up of stocks in value wherein the stock gets notable investors, limelight from media channels and all types of attention to enables its prices to rise tenfold its initial value. However, this pumping strategy is only to garner smalls scale investors to invest in the stock while convincing them of adequate returns in the long term. The manipulation process can be executed either by a single person or by a company. But then, once the stock value reaches its all-time high, then the investors who might have invested in these stocks and started the whole process of getting the stocks to this valuation start selling it. Which then causes a ripple effect causing it to crash and enabling hundreds if not thousands of investors to lose their money.
Stock marketing manipulation is an illegal way of increasing the valuation of the stock prices and then dumping the stock suddenly to cause exponential losses to the investors. However, in the present day scenario, such activities aren't allowed as tighter regulations regarding this. However, several notable investors in the past and the early days of the stock market have successfully used this strategy to garner exponential returns over a short period.
Stock Market Manipulation
Stock market manipulation is an illegal way of pumping the stock value up. However, it leads to adverse reactions from investors where they tend to lose confidence in the market and causes them to pull out their investment. Which, in turn, leads to the devaluations of the market cap if there was. A sizable amount of money being withdrawn from the company. However, stock market manipulation is now prevented as SEBI lays down strict guidelines and rules to prevent such things from arising.
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