Introduction
Crypto trading requires practical experience much like any other investment market. Even professionally trained investors take their time to take up the practical experience and learn to detect market manipulation techniques as and when they encounter them.
What is Market Manipulation?
Market manipulation entails the illegal practices that are used to sway the market direction positively or negatively. Every trading product or investment instrument is issued in exchange for public access.
However, some investors may use tactics and techniques that grant them an unfair advantage over others in the space. Therefore, financial regulators work on identifying such market practices and governments classify them as illegal.
How does Market Manipulation Work?
Market manipulation techniques are often complicated to pinpoint. However, the regulators keep a watch on markets and trading platforms to ensure that such practices do not take place. Some experts believe that market manipulation at various levels still goes undetected at large.
There are many ways to perform market manipulation and scammers are finding new ways to perpetrate the financial markets every single day. Some popular market chicanery measures are insider trading, wash trading, pump-and-dumps, and even poop-and-scoop schemes.
Types of Market Manipulation Techniques
A typical retail investor does not exercise a lot of control over the financial markets. However, it is possible to avoid falling into traps by learning about the inner workings of different types of market manipulative techniques.
Some of the most common types of market manipulation methods are mentioned as under:
Wash Trading
Wash trading is the process of placing various sell and purchase orders for a particular cryptocurrency. It is done to create the illusion of massive demand and increase prices. Investors who are looking at the price metrics from the outside are deceived into purchasing the cryptocurrency in question hoping to make a profit.
However, the perpetrators quickly pull back the deceptive orders and cash out their positions at the expense of others.
Rug Pulls
Rug pulls are scams where unreliable threat actors create a questionable cryptocurrency project. There are also instances of temporarily amplifying the attention of investors towards a particular cryptocurrency.
When investors flock around the project with hopes to earn profits, the scammers can fold their majority position or wrap up the project and run away after taking profits from unsuspecting victims of their market manipulation.
Pump-and-Dump
Pump-and-dump is also a classic technique of artificially inflating the price of a given cryptocurrency. Some scammers may issue order signals on their selected crypto projects which they have already accumulated at cheaper prices.
Once the prices are inflated enough, the scammers take profits breaking down the bullish streak of a given cryptocurrency. Hence, the retail investors end up with losses.
Controlling Shareholders
The majority shareholders who own more than 50% of a company share are referred to as controlling shareholders. In crypto tokenomics, investors can check which players hold the biggest quantity of the circulating supply of a given cryptocurrency.
In this manner, the investors can find out the fair market distribution that could secure or threaten their profit potential. This type of market manipulation is not illegal but it can hurt the interests of average crypto investors. The controlling crypto supply owners may continue to take profits at regular intervals at the expense of others.
Misrepresentation
Misrepresentation is illegal and it involves issuing falsified or forged information about a given project to defraud investors. A cryptocurrency project is secure from misrepresentation since it is impossible to forge the on-chain data regarding its trading activity.
However, there are some cases where scammers use other techniques such as wash trading to artificially inflate the market expectations and trick investors into losing their savings.
Conclusion
Market manipulation techniques are almost always illegal. However, fraudsters have found intricate ways to throw off the regulators and cover their tracks.
There are many cases, where holding those in power accountable for their actions becomes a real challenge. Therefore, investors should continue to learn about crypto market manipulation techniques as the best preventive measure.
