What is a false market?
When prices are manipulated and affected by incorrect information, false markets are created and efficient price negotiations are hindered. These types of markets are often undermined by volatile fluctuations, as the true value of the market is clouded by false information.
- A false market is a financial market that inaccurately represents the reality of the situation.
- Investors and traders rely on accurate information to make buying and selling decisions in financial markets.
- Fake markets occur when prices are manipulated and affected by untrue information.
- Volatility is common in the wrong market because investors make informed decisions.
- Prices can be manipulated by the spread of false information such as false financial information, media misrepresentation, fake news releases by criminals, and false investment schemes.
- The Securities and Exchange Commission (SEC) is responsible for detecting and blocking false information that could impose serious penalties.
Understand the false market
The health and success of financial markets depends on the dissemination and sharing of accurate information to all involved parties. Accurate information enables a company to make a correct assessment, and investors can make decisions based on that information. Accurate information allows both buyers and sellers to make the best decisions based on true knowledge.
If this information is tampered with or provided incorrectly, it will be determined based on lies. When investors use inaccurate information to guide the investment process, they are absurd and tend to overreact or underreact to the news. The illogical decisions made by these investors distort the market, misrepresenting the true value of the security and resulting in a false market that does not represent the true reality.
Wrong market cause
False markets are usually caused by the dissemination of false information. This could include falsification of financial statements by companies, dissemination of inaccurate news by the media, misrepresentation of business activities in many financial schemes, and criminals disseminating false information through various channels. there is.
When false information is disclosed and believed by investors, they make certain decisions. If a company manages to show that quarter note earnings have exceeded estimates, when it actually suffers a large loss, investors will buy stocks based on the idea that it is working well. Will buy.
This lie can only be supported for a long time, and when the truth is revealed, the stock price plummets and the investor loses his investment because he bought the stock based on the lie.
Because financial markets are complex and intertwined, false markets hurt all stakeholders involved, including those who do not purchase the specific security associated with false information.
Wrong markets usually cost investors and other stakeholders. However, if an investor buys a security at a low price when he believes it is undervalued, it can be profitable. This may be due to incorrect information provided.
An example of a false market is that of Scottish trader James Allan Craig. A false tweet that two companies are investigating caused the stock prices of the two companies to plummet, and one transaction stopped in 2015.
The Securities and Exchange Commission (SEC) has charged him with securities fraud. The SEC’s complaint alleged that Craig’s first series of false tweets caused Audience Inc.’s share price to fall 28% the day before the Nasdaq temporarily suspended trading. The next day, Craig’s false tweet about Salepta Therapeutics Inc. caused the share price to fall 16%.
Craig created a fake Twitter account for his fraudulent tweets that looked like the accounts of two well-known securities research firms. Each time, Craig aggressively bought and sold the shares of the target company, but was unable to make a significant profit from his transaction.
After the fraud was discovered, the SEC issued an investor alert entitled “Social Media and Investment-Stock Rumors” produced by the Investor Education and Advocacy Department.
The warning warned investors about fraudsters who could attempt to manipulate stock prices via social media by disseminating false or misleading information about stocks. The SEC has also provided tips for recognizing the danger signals of investment fraud.