12. Price Manipulation: Pump and Dump
Another frequent method of price manipulation on unregulated markets is so-called "Pump and Dump". Such a trick can be implemented by one player that have a large amount of funds or by a group of participants by a preliminary conspiracy.
The essence of the method is the gradual purchase of a large quantity of commodity from the market to raise prices. Sharp rise in price attracts other participants and they also start buying up following the trend in hope that the price will continue to grow further. Their actions are pushing the price even higher.
The most important point in this method is to determine the right time when to start selling the purchased commodity at the inflated price by the organizers of the manipulation. How can you determine such a moment?
Such a method can be determined in advance by agreeing on the volume. If the volume of the purchase is higher than the agreed level, it's a clear signal that other traders were attracted by the trick. At this point the organizers usually start the sale thereby making a profit.
It's noteworthy that such a scheme can be done exactly the opposite. Instead of buying you can start sharply selling the commodity. Afraid to stay with the depreciating asset inexperienced traders begin to get rid of it at a low price. At the end of the dump the organizers buy out the sold commodity with a discount thereby increasing its quantity.