What Is Manipulation?
Market manipulation is conduct designed to deceive investors by controlling or artificially affecting the price of securities.
Manipulation is illegal in most cases, but it can be difficult for regulators and other authorities to detect and prove.
Market manipulation may involve factually false statements as well, but it always seeks to influence prices in order to mislead other market participants.
Market manipulation aims to mislead other market participants.
Manipulation is hard to detect and prove, but it's also harder to execute in the larger and more liquid markets.
Two common types of stock manipulation are the pump-and-dump and the poop-and-scoop.
Manipulation Methods
Manipulation is more difficult for the more liquid, or widely traded securities. It is much easier to manipulate a penny stock with a tiny typical daily trading volume than the share price of a large-cap company with daily turnover valued in billions of dollars.
The pump-and-dump is a market manipulation often used to artificially inflate the price of a micro cap stock before selling it. Less common is the inverse poop-and-scoop scheme, in which false derogatory statements are made about a stock in order to buy it on the cheap. There's also the short-and-distort variety, essentially a poop-and-scoop executed by short-sellers in order o profit.
While such schemes rely primarily on promotion or factual misstatements they are often supplemented by illegal trading tactics designed to deceive.
One common means is order spoofing, which involves the placing of numerous buy or sell orders designed to move the price of the stock, then cancelling them once other traders have moved their own bids or asks accordingly.
Order spoofing has tempted staff at large Wall Street firms alongside shady day traders, and can take place in the bond and metals markets as well as in the stock market.