What is 'Manipulation'

Manipulation is the act of artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain. Manipulation is illegal in most cases, but it can be difficult for regulators and other authorities to detect. Manipulation is also difficult for the manipulator as the size and number of participants in a market increases. It is much easier to manipulate the share price of smaller companies, such as penny stocks, because they are not as closely watched by analysts and other market participants as the medium and large cap firms. Manipulation is variously called price manipulation, stock manipulation and market manipulation. 

BREAKING DOWN 'Manipulation'

Manipulation takes many forms in the markets. One way people can deflate the price of a security is by placing hundreds of small orders at a significantly lower price than the one at which it has been trading. This gives investors the impression that there is something wrong with the company, so they sell, pushing the prices even lower. Another example of manipulation would be to place simultaneous buy and sell orders through different brokers that cancel each other out but give the perception, because of the higher volume, that there is increased interest in the security.

Two Types of Stock Manipulation

These false order techniques are often combined with the spreading of false information through online channels and message boards that other investors may frequent. The outside barrage of bad information combines with seemingly legitimate market signals to encourage traders to pile on or off a trade. The pump and dump is the most frequently used manipulation to artificially inflate a micro cap stock and then sell out leaving later followers to hold the bag. The opposite of the pump and dump is the less common poop and scoop. The poop and scoop seems to be used less because it is harder to make a legitimately good company look bad than it is to make an unknown company look amazing. 

One Type of Legal Manipulation

Currency manipulation is a slightly different class of market manipulation, as only central banks and national governments can engage in it and they are legal authorities in and of themselves. Being the owner of a currency legitimizes many of the actions these governments take to suppress or inflate their currency's value compared to its peers. Even though currency manipulation is not illegal, a country that is manipulating its currency may be challenged by other nations or punished through sanctions passed by its trading partners. Moreover, international bodies like the the World Trade Organization (WTO) have been encouraged to play a stronger role in addressing accusations of currency manipulation