Tradeguider Blog

Empowering you to trade alongside the smart money through proven and pedigree methods and expert guidance that is with you all the way

Market Manipulation – Fact or Fiction?

Posted by Tradeguider Team on Mar 6, 2020 8:15:00 PM

What is market manipulation | examples

Wherever you are in your trading journey, you will have heard of the term 'market manipulation'. Whether you deem it as the murky side of trading or an embedded inevitability of the markets, there is seemingly no getting away from it. In this blog, we offer a brief introduction to market manipulation, what it can entail and how it works.

 

Market manipulation is everywhere

In the years since the financial crisis of 2008, there have been repeated discoveries of market manipulation across all sectors. The crisis itself was prompted by the manipulation of the subprime mortgage market by US banks and it brought increased scrutiny from regulators across all sectors. There are lots of market manipulation examples out there, but we’ve outlined a few well-known ones below. 

 

Some big-name market manipulation examples

For instance, the word ‘LIBOR’ became mainstream news, with big banks having been found to have rigged inter-bank interest rates.

In one example from the FOREX market, in 2015 Citibank, JPMorgan Chase, Barclay and RBS pled guilty to rigging the U.S. dollar-to-euro exchange rate.

Commodities are not immune from market manipulation either - Goldman Sachs, Morgan Stanley and J.P. Morgan Chase were reprimanded for exploiting the control they have both over the online market as well as the physical warehouses for items like aluminium and oil industry assets.

And neither are securities: just think Enron, Nick Leeson at Barings Bank or the real “Wolf of Wall Street”, Jordan Belfort. Back in 2015, the U.S. Securities and Exchange Commission (SEC) issued a report saying that market manipulation was up 37%, despite the increased scrutiny.

Such market manipulation manoeuvres are often the work of professional traders who work in trading syndicates, investment banks and investment management firms, funds, or individual traders with huge capital. These players are responsible for over 80% of the money in the markets. They keep their activities secret.

Because of their huge purchasing power, they can drive prices down by selling off large positions in a given instrument, and then buying it back at a much lower price.

Such market manipulation is not a board-level policy, but is carried out by individuals within the company who, without the line management that has only latterly been put in place, act independently or in small groups. As journalist Gaby Lapera said in this The Motley Fool article, [They] ‘are in a high risk, high competition industry….looking for any kind of advantage they can possibly get.’

 

But what actually is market manipulation?

The US Securities and Exchange Commission describes market manipulation as the practice of ‘spreading false or misleading information about a company; improperly limiting the number of publicly available shares; or rigging quotes, prices or trades to create a false or deceptive picture of the demand for a security.’ (Source: Investor.gov)

Market manipulation techniques have names like ‘short and distort’, ‘pump and dump’, ‘churning’, ‘wash trading’, ‘cornering the market’ and, of course, ‘insider trading’.

But don’t be confused by the jargon. In practice, market manipulation examples can be as simple as someone creating a look-a-like social media presence that impersonates a genuine information source and then putting out fake news. Have a look at this stock market manipulation example, where charges were brought against a Scottish trader whose false tweets caused sharp drops in the stock prices of two companies: SEC Charges: False Tweets Sent Two Stocks Reeling in Market Manipulation.

Group psychology and the weaknesses of technical analysis are being used against the retail trader, who is persuaded to buy or sell because everyone else is doing it, or because there has been bad news for the company concerned.

 

So….what to do about market manipulation?

The wisest thing to do about market manipulation is to accept it as an intrinsic part of the structure of the markets, rather than getting frustrated. It’s just the nature of the game.

The key is education, especially for day traders who are more at risk because short-term gains in a stock can evaporate very quickly without an apparent reason. Everyone can benefit from thinking long term.

For more information on market manipulation, head to our dedicated website: MarketManipulation.org. On this site there are lots of great resources, information, videos and market manipulation examples to help you understand more about the practice. Especially this video: Market Manipulation: The Truth & How You Can Profit. It offers great insights into the realities of market manipulation.


Tradeguider is the home of Wyckoff Volume Spread Analysis (VSA). As highly experienced experts in trading techniques and trends, we have a wealth of trading resources on our website, from ebooks and pdfs to webinars and videos. Our trading services include trade alerts for FOREX and futures, stock scanning, mentorships and courses to enhance your trading capabilities. Get to touch if you’d like to discuss market manipulation or our range of services and resources.

Subscribe Here
To be notified when a new blog is posted!

Posts Library

Technical Analysis of the Financial Markets - Leading or Lagging?
3/20/2020
Market Manipulation - Fact or Fiction?
3/6/2020
Why Wyckoff VSA (Volume Spread Analysis) is a Three-Dimensional View of the Market
4/17/2020
How Tradeguider's SMART Trader Software Reduces Chart Analysis Time by 80%
5/15/2020
When to Make the Leap from Demo Trading to Real-Life Trading
4/3/2020
The 10 Fundamentals of Choosing a Broker
6/4/2020
4 Key Reasons to Use the Wyckoff VSA Trading Method in Your Strategy
5/29/2020
How to Choose a FOREX Broker: 5 Things to Consider
5/29/2020
How to Gain a Competitive Edge by Following the Smart Money
6/24/2020
Automated Trading Tools: Identify Opportunities at the Tops & Bottoms of the Markets
6/19/2020
How to Know When the Reversal is Coming in Countertrend Trading
7/14/2020
VSA FOREX Strategy: How to Use Volume in the FOREX Markets
5/1/2020
How to Trade Smarter with Rules-Based Trading Strategies
7/17/2020
Health Tips for Traders: 3 Ways to Improve Your Immune System
8/20/2020
Q&A with Tradeguider CEO Gavin Holmes
10/9/2020
Women in Trading: Insights from Female Traders Using Wyckoff VSA
9/1/2020
How to Avoid Common Beginners Mistakes in Trading
11/12/2020
Politics and Trading the Markets
10/23/2020
How to Relieve the Strain of Chart Analysis with Trade Alerts
11/27/2020
Enhance Your Trend Trading Strategy with Wyckoff VSA Tools
12/14/2020
Trading in the time of Corona: 2020, A review
12/23/2020
Mindset Tips for Traders: 7 Ways to Help Your Trading Be More Consistent
1/11/2021
Trading cryptos and Wyckoff VSA: 3 things you need to know
2/5/2021
Trading in the Middle East - A Market Overview
2/23/2021
Combining Technical Analysis and Wyckoff VSA - an Insider`s View
4/21/2021

Free Access to the Tradeguider  Resource Center

Become a VSA trader now. Access everything you need to learn to trade using Wyckoff VSA: educational videos, PDF’s, eBooks and courses. No software required.