Market Manipulation: More Than An Insider Trading….
Spoofing, Churning, Cornering, Ramping, Wash Trading, Bear Raiding ….what else?
Market manipulation happens when
someone tries to rig the supply and demand of a particular stock or any type of security. It’s a tactic or scam that could lead you into thinking that the
market is going in one direction when it’s not. It is the act of intentionally trying to increase or
decrease the value of a stock or influencing the behaviour of the market to do
so and eventually taking profit from such activities.
While insider trading may be a famous example but there are many other illegal tactics that unscrupulous traders use to try and exploit the market for profit This can take many forms and of course all of which is illegal and can result in hefty fines and criminal prosecution if discovered.
Below is the latest case on how a big bank using one of the tactics (spoofing) to manipulate
and rig the gold futures market.
On 14th
Jan 2020:
JPMorgan’s
trading surge helps fuel most profitable year ever <source: AmericanBanker.com>
“JPMorgan
Chase & Co. just posted the best year for any U.S. bank in history.
Fueled by a
rebound in trading, especially in fixed income, the company said profit jumped
21% in the fourth quarter, pushing annual earnings to a record $36.4 billion.
The biggest U.S. bank generated $4.95 billion in trading revenue in the quarter, a 56%
increase that was better than analysts expected. That marked the best fourth
quarter for the firm’s trading desks in more than a decade $36.4 billion.”
On 2nd
Oct 2020:
Many
of the big
market-manipulation scandals over the past decade have much in common: huge
fines for the investment banks, criminal charges for the traders and an
embarrassing paper trail revealing precisely what bank employees got up to.
Interest-rate traders who manipulated the London Interbank Offered Rate (LIBOR) messaged each other with
pleas to put their fixes in low. Foreign-exchange traders infamously called a
chat room in which they discussed rigging exchange rates “the cartel”.
The case
against JPMorgan Chase for manipulating precious-metals and Treasury markets
has many of the usual features. On September 29th it admitted to wrongdoing about
the actions of employees who, authorities claim, fraudulently rigged markets
tens of thousands of times in 2008-16. The bank agreed to pay $920 mil to settle
various probes by regulators and law enforcement; this includes a $436.4m fine,
$311.7m in restitution to parties harmed by the practices and $172m in
disgorgement (ie, paying back unlawfully earned profits). Some of the traders
involved face criminal charges. If convicted, they are likely to spend time in
jail.
Ex-Deutsche
Bank gold traders found guilty in spoofing trial <sources:Businesstimes.com.sg>
CK投資理財|摩根大通'Spoofing'黃金期貨的真正目的【內幕驚人!!】|10億罰款背後的利益驅使!!
Spoofing (finance) by Wikipedia.org
Spoofing is a
disruptive algorithmic trading activity
employed by traders to outpace other market participants and to manipulate
markets. Spoofers feign interest in trading futures, stocks and other
products in financial markets creating an illusion of the demand and supply of
the traded asset. In an order-driven market, spoofers post a relatively large
number of limit orders on one side of the limit order book to make other markets participants believe that there is pressure to sell (limit orders are posted on
the offer side of the book) or to buy (limit orders are posted on the bid side
of the book) the asset.
Spoofing may cause prices to change because
the market interprets the one-sided pressure in the limit order book as a shift
in the balance of the number of investors who wish to purchase or sell the asset,
which causes prices to increase (more buyers than sellers) or prices to decline
(more sellers than buyers) (spoofing in electronic markets). Spoofers
bid or offer with intent to cancel before the orders are filled. The flurry of
activity around the buy or sell orders is intended to attract other traders to
induce a particular market reaction. Spoofing can be a factor in the rise and
fall of the price of shares and can be very profitable to the spoofer who can
time buying and selling based on this manipulation.
Under the 2010 Dodd-Frank Act spoofing
is defined as "the illegal practice of bidding or offering with the intent
to cancel before execution." Spoofing can be used with layering algorithms
and front-running, activities
which are also illegal.
Other Forms of market manipulation
Market manipulation can be found in some of the following
forms:
- Churning. This
is when traders place buy-and-sell orders at the same price, and this is
usually meant to attract more investors and increase the price at the same
time.
- Painting the tape. Here, a group of traders creates rumours or activities to increase the stock price. This is also known as ‘Ramping’ or ‘Runs.’
- Wash trading. The trade sells and re-purchases the same security or a substantial amount of the same security to generate more activity and increase the price as well.
- Bear raiding. This is where a trader attempts to reduce the stock price through either short or heavy selling.
- Cornering the market. This is the scenario where the trader purchases enough of a certain commodity,
stock or another asset for him or her to control the supply and be able to determine the price for it.
- Insider trading. Here,
insiders with critical and confidential information about a business capitalize on that knowledge to make a profit and avoid losses via buying and selling of stocks.
Market manipulation affects day
traders and short-term investments the most, one need to be careful if you are
doing options or futures trading.
Falling victim to market
manipulation isn’t fun, it is also expensive. The best is to avoid trading these
financial derivatives.
Cheers!
STE
Quote Of The Day :
“Life seems to be
like a stock market...
Where relationships are traded/manipulated...
Can't judge when the value of a relationship will go high or
low...!”
―
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