EXPLAINER: What is market manipulation? How do brokers play this game? How can you avoid this fraud? – market

Market manipulation simply means cheating investors. In this, some people deliberately spread wrong information or do artificial trading so that the share price moves according to them. This is completely illegal. Its main objective is to earn huge profits by misleading common investors.

Main methods of market manipulation

Pump and Dump: This is the most common method. In this, some people first buy a lot of shares of a cheap company. They then spread false, good news about that company through social media or other means. When people see the bullishness and start buying shares and the price increases, then these people sell their shares and leave and common investors get trapped.

Spoofing: In this, fraudsters place ‘fake orders’ to buy or sell shares in large quantities. Seeing this, other investors feel that there is a lot of demand for the share. But they cancel these orders just before the deal happens. This creates a false environment in the market.

Wash Trades: In this, people of the same person or group keep buying and selling shares among themselves. Actually the owner does not change, it is just shown to the market that there is a lot of trading in this stock.

Bear Raids: This is the reverse of ‘pump and dump’. In this, bad news is spread about a company so that people get scared and sell shares and the prices fall. When prices fall, these people take advantage by buying shares at lower prices.

SEBI’s action in DU Digital case

SEBI’s investigation found that there were huge irregularities in the shares of DU Digital between August 2021 and March 2023. After investigation, SEBI imposed a ban of 2 years on 26 people and imposed a fine of Rs 1.87 crore. Ordered to return Rs 98.78 lakh earned illegally.

How can manipulation be prevented?

Regulators and exchanges take several steps to keep the markets safe:

Real-Time Monitoring: Every trade is monitored using AI and advanced systems so that any unusual activity can be detected immediately.

Whistleblower: People who inform the government about the irregularities happening inside the company, are given rewards and protection.

Strict rules: Strict laws have been made to prevent insider trading (use of inside information).

Control on false news: Misinformation circulating on social media and news channels is monitored.

Let us finally tell you that the best way to stay safe in the market is to ‘avoid greed’. If a stock is suddenly rising like a rocket without any solid reason, then be careful. Don’t invest just based on hearsay. Always check the fundamentals of the company.