STOCKS TRADING BASICS How to Legally Manipulate Stock Prices...

STOCKS TRADING BASICS
How to Legally Manipulate Stock Prices

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Institutional Investors Can Move Stock Prices to Their Advantage

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BY KEN LITTLE

Updated August 05, 2019
Manipulating stock prices can happen quite easily, and it takes place more often than you might think. Achieving it in a perfectly legal way is not necessarily difficult, depending on how much trading power an entity has.


Individual stock investors don't have ready access to these types of market-manipulating techniques and, consequently, often end up being on the losing end of these schemes. In this situation, a little knowledge can go a very long way.

hedge funds, mutual funds, and insurance companies zeroes in on a stock that it owns and begins selling it off.


As the large investor dumps the stock onto the market, the price will naturally begin to take a nosedive. Other investors might start to panic, and then begin to unload the stock as well. As a result, the stock's popularity, and of course price, continues to fall.


At some point, the institutional investor decides that it's time to jump back into the market and it begins an aggressive buying program to acquire new shares of a given stock. Soon other investors notice that the stock's price has begun to rise again, and they also begin to buy up the stock so they can ride the price up and make a profit. This demand continues to push the price up higher. The cycle might begin again when the price hits a sufficiently high price, and it often does.


The Slingshot Effect
Large institutional investors, because of their huge purchasing power, have the ability to drive prices down by selling off large positions in a given stock, and then buying back into the stock at a significantly lower price. Then, these large investors ride that price up as others join the rally, and then pocket a hefty profit as a result.