(Thank you to Mr. Zahir from MTrading.eg for providing this content, not originally written by DaxTrader.co.uk)
According to the US’ Securities Act of 1934, under Section IX-A, and the Securities & Exchange Commissions (SEC), the manipulation of results in the foreign exchange market is strictly prohibited. However, for many traders, using their preferred trading approaches isn’t meant to go against the law; their intention is to simply make odds go in their favor. If you plan to gauge your own trading practice, begin by learning about the different forms of market manipulation.
Here’s a list of five illegal trading strategies:
1. Bear Raiding
Bear raiding is the tactic of ganging up with fellow traders and short-sell an investment; it is a bit difficult not to interchange with short-selling (which is a legal trading strategy). In such an approach, the plan is to push prices low by means of short-selling and jeopardizing the reputation of either an investment or opposing traders. In most cases, this is done by short-sellers who are eyeing quick wins from their short positions.
2. Luring & Squeezing
Luring and squeezing is the act of targeting investors (individuals or groups), then offering them the chance to be participants in a deal that they can hardly refuse. Once they agreed to certain terms, the fraudulent trader uses their investments to buy and/or sell positions. This unfolds with a decrease in profits for one party, and an increase in profits for another.
3. Pumping & Dumping
Pumping and dumping is the scam that describes herding in an additional batch of investors, then letting it go and taking its money in the process. Particularly, the corrupt trader endorses a certain held investment. For his subjects to want to put in money for the said investment, he will polish its reputation until they start to forward funds; once he’s had enough money, he will establish a selling position and dump or forget the involved investors.
Running is the trading strategy that describes the activity of a cluster of traders who are spreading rumors about a certain investment. Since the objective is to increase the sales of the said investment, the false claims are likely positive in nature.
5. Wash Trading
Wash trading is the trading strategy that involves buying investments from one broker, then approaching a different broker for a sale. The objective of this is to increase a certain investment’s volume. Particularly, it adds a cycle of buying and selling activities to an investment to make it appear “more attractive”.