Market Manipulations by Institutional Investors


Market manipulations are mostly orchestrated by large institutions because of their high purchasing power. It is illegal in many countries and it may be difficult to identify it in some circumstances. For example, it is easier to manipulate the price of smaller companies (penny stocks) than bigger companies because the former have smaller market caps. Market manipulations can be implemented by creating a false demand or supply for the stock, insider trading, and spreading false information related to a company. Social media (Reddit and Youtube) is playing a big role in this case. One of the recent examples is the manipulation of Gamestop price by Redditers. However, in this case, retail investors manipulated the stock price rather than large institutions and hedge fund managers.


One of the most famous scenarios of market manipulations is pump and dump. In this scheme, large institutions start accumulating some positions in stock in a non-obvious manner. Eventually, they start buying a big chunk of the stock that results in a stock price jump. As the price surge happens, more retail individual investors jump into the stock that further increases its price. As price increases, the market manipulator starts selling their positions that cause the price collapse. Eventually, the disappointed individual investors start selling their positions which results in a further price decline. Therefore, the average investors should always be skeptical over immediate price changes for no reason.


Another method for stock price manipulation is selling and buying the stock at the same time by institutions using different brokers. This increases the trading volume for a stock which may create a wrong perception about the popularity of a stock. In the end, the stock market can be indirectly impacted by the macroeconomic decisions made by the government to balance the economy. For example, the market has its cycles (bear market vs bull market) that can be impacted by the macro-decisions (for example, using interest rates) made by the government. However, these decisions usually impact the whole market as opposed to specific stock targeted by institutional market manipulators.