# Understanding Market Manipulation: Key Methods, Types, and Examples

## What Is Manipulation?

Market manipulation aims to deceive investors by controlling or artificially affecting the price of securities. Although illegal, it can be a challenging activity for regulators to detect and prove. Using tactics such as factually false statements, these schemes influence prices to mislead market participants. Dive deeper into common methods like pump-and-dump or poop-and-scoop, and understand the intricacies of both stock and currency manipulation.  

### Key Takeaways

*   Market manipulation involves deceptive practices to artificially control security prices and mislead investors.
*   Common manipulation tactics include pump-and-dump, poop-and-scoop schemes, and order spoofing.
*   Regulating authorities struggle to detect and prove manipulation, especially in less liquid markets like penny stocks.
*   Currency manipulation is often a political accusation in trade disputes rather than a legal issue.
*   The U.S. Treasury monitors foreign exchange policies, but labeling a country as a currency manipulator is a subjective judgment.  
    

## Common Market Manipulation Strategies

Manipulation is more difficult for the more [liquid](https://www.investopedia.com/terms/l/liquidity.asp), or widely traded securities. It's easier to manipulate a [penny stock](https://www.investopedia.com/terms/p/pennystock.asp) with low trading volume than the shares of a [large-cap](https://www.investopedia.com/terms/l/large-cap.asp) company with high daily turnover.

The [pump-and-dump](https://www.investopedia.com/terms/p/pumpanddump.asp) is a market manipulation often used to artificially inflate the price of a microcap stock before selling it. A less common tactic is the [poop-and-scoop](https://www.investopedia.com/terms/p/poopandscoop.asp), where false negative statements depress a stock so it can be bought cheaply. There's also the short-and-distort variety, essentially a poop-and-scoop executed by short-sellers in order to profit.  

These schemes, based on promotion or falsehoods, often include illegal trading strategies to deceive.

One common means is [order spoofing](https://www.investopedia.com/terms/s/spoofy.asp), which involves the placing of numerous buy or sell orders designed to move the price of the stock, then canceling them once other traders have moved their own [bids](https://www.investopedia.com/terms/b/bid.asp) or [asks](https://www.investopedia.com/terms/a/ask.asp) accordingly. Order spoofing has tempted staff at large Wall Street firms alongside shady daytraders, and can take place in the bond and metals markets as well as in the stock market.

## Understanding Currency Manipulation in Global Trade

Currency manipulation is an accusation often levied in trade or [exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp) disputes, notably by the U.S. against trading partners who are sometimes alleged to set the exchange rate of their currency against the U.S. dollar artificially low to boost [exports](https://www.investopedia.com/terms/e/export.asp). Governments and [central banks](https://www.investopedia.com/terms/c/centralbank.asp) can be accused of currency manipulation if they fix the exchange rate or seek to affect it less openly with market transactions from time to time.

Currency manipulation is a political term, not a legal one, since sovereign countries set foreign exchange policies. Currencies are [fixed](https://www.investopedia.com/terms/f/fixedexchangerate.asp) or allowed to [float](https://www.investopedia.com/terms/clean-float.asp) for a variety of internal and external motives, while currency manipulation claims are almost always the result of dissatisfaction with trade flows. As a result, whether a currency manipulation is taking place or not is often a subjective judgement.

The U.S. Treasury reports twice a year to Congress on the macroeconomic and exchange policies of the main U.S. trade partners, as required by the 1988 Omnibus Trade and Competitiveness Act. The report uses evaluation criteria spelled out in the Trade Facilitation and Trade Enforcement Act of 2015. The December 2021 report found that no major U.S. trading partner manipulated its currency against the U.S. dollar for an unfair trade advantage, but it called for more scrutiny on Vietnam and Taiwan.  

> **Important**
>
> Currency manipulation is a political claim rather than an illegal market deception.

## Example of Currency Manipulation Claim

On August 5, 2019, the [People's Bank of China](https://www.investopedia.com/terms/p/peoples-bank-china-pboc.asp) (PBOC) set the Chinese yuan’s daily reference rate above 7 yuan per dollar for the first time in over a decade, depreciating the Chinese currency against the dollar and making Chinese exports cheaper in dollar terms. The rate was set after the announcement by the Trump administration of new [tariffs](https://www.investopedia.com/terms/t/tariff.asp) of 10% on $300 billion worth of Chinese imports, which went into effect September 1, 2019.

The same day the yuan exchange rate topped 7 per dollar, the Trump administration labeled China a currency manipulator, a designation lifted a few months later. The tariffs on Chinese exports, however, remained in place as of July 2024.

## The Bottom Line

Market manipulation, whether in securities or currencies, is conducted to mislead investors or affect prices to someone’s benefit, often through deceptive means. While such actions are broadly illegal, proving them can be challenging.

Common manipulation methods include pump-and-dump schemes and order spoofing, which are typically more successful in less liquid markets. Currency manipulation, a political accusation, frequently emerges in international trade disputes and is often subjective. Traders and investors should remain informed and vigilant to navigate and mitigate the risks these practices pose.  

> **Article Sources**
>
> 1.  U.S. Securities And Exchange Commission. "[Market Manipulation](https://www.investor.gov/introduction-investing/investing-basics/glossary/market-manipulation)."
>     
> 2.  NASDAQ. "[Regulatory Roundup: Decoding Spoofing](https://www.nasdaq.com/articles/regulatory-roundup-november-2023)."
>     
> 3.  Congressional Research Service. "[Exchange Rates and Currency Manipulation](https://fas.org/sgp/crs/misc/IF10049.pdf)."
>     
> 4.  U.S. Treasury. "[Treasury Releases Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States](https://home.treasury.gov/news/press-releases/jy0513)."
>     
> 5.  Office of the United States Trade Representative. "[USTR Announces Next Steps on Proposed 10 Percent Tariff on Imports from China](https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/august/ustr-announces-next-steps-proposed)."
>     
> 6.  U.S. Department of the Treasury. "[Treasury Designates China as a Currency Manipulator](https://home.treasury.gov/news/press-releases/sm751),"
>     
> 7.  The White House: Biden Administration. "[Fact Sheet: President Biden Takes Action to Protect American Workers and Businesses from China’s Unfair Trade Practices](https://www.whitehouse.gov/briefing-room/statements-releases/2024/05/14/fact-sheet-president-biden-takes-action-to-protect-american-workers-and-businesses-from-chinas-unfair-trade-practices/)."