Do you know how operators manipulate stock prices? If not, then you need to understand the operator’s game because if you don’t understand it, you can make huge losses in the stock market. How do operators trap retail investors in the stock market and what are the ways to avoid them, so that you don’t fall into their trap.
Who are Operators in the Stock Market?
Let us understand the operators who multiply their money by 20 to 30 times in only a few months. Operators can be any individual, institution or group of people who have money in bulk and use the money to manipulate the stock. Manipulating means increasing or decreasing the price of a stock as per wish. Now you must be wondering how a person can increase or decrease a stock price and if someone can manipulate the stock price then they must be earning huge profits.
How do Operators Manipulate Stock Prices?
How does a stock increase or decrease? For this, there are only two factors which increase or decrease the price of a stock, they are demand and supply. If the demand for a stock increases then its price also increases, i.e. there is a direct relationship between demand and stock price. There is an indirect relationship between stock price and supply, i.e. if the price of a stock increases then its supply remains less and if the price of a stock decreases then its supply remains more.
Let us understand with the help of an example how operators manipulate the stock price:-
XYZ Limited is a company whose stock price the operators want to increase. If operators want to manipulate the stock price of a company, the company must be small. If the company is large then more money is required to manipulate its stock price. When the market cap of a company is up to Rs 30, 40 or Rs 50 crore then it is very easy to manipulate its stock price. When the market cap of a company is Rs 1000 or Rs 2000 crore then it will cost more money to manipulate the stock price of that company.
Assume that the market cap of XYZ Limited is Rs 60 crore and its share price is Rs 60. Now this company is only worth 60 crores, so when the operators start buying the shares of this company, the demand for the shares of XYZ limited will start increasing. There is a direct relation between demand and price, hence the share price of XYZ Limited will also start increasing. Operators will keep increasing the share price of XYZ limited by 70 80 i.e. with the number of operators who will buy its shares.
Any new investor who does not know the stock market or any person interested in penny stocks will feel that the share price of XYZ limited has increased from ₹60 to ₹70 in just 10 days and still the price is increasing. Then retail investors will also start buying shares of XYZ Limited. Now both retail investors and operators are buying, so the price of that share may go up to Rs 70 to Rs 100.
Now the real game of operator will begin. Operators will run Instagram Ads, YouTube Ads, Telegram Group and different websites related to XYZ Ltd stock earlier this stock was worth Rs 60 and in just a few days the stock reached ₹ 100. Due to the impact of all these, the retail investor will feel that this stock is being discussed everywhere, so why not buy this stock? Due to this, there will be more demand for that stock and its price will increase. Even at this point, you will not sell the shares of that company because you were told in those ads that this share would cross Rs 200 or Rs 300.
At this point, the operator would have made a lot of profit and since they had huge quantities of that stock, when they start selling the shares there will be a lot of supply in the stock of XYZ Ltd. Due to this, the price of that stock will start going down daily. In between, operators will also keep running ads and selling out their holdings.
When operators sell more quantity, daily lower circuits will be formed in that stock. Lower circuit means that there is supply in stock but there is no one to buy, so when you place an order to sell, your order will not be executed because operators before you have placed orders to sell their quantities.
The operators will bring the stock price back to Rs. 60. In such a situation, all the people who had bought the stocks of XYZ Limited will be left stranded and will not be able to sell their quantity, but the operators will have multiplied their money. Now you must have understood how operators increase the demand for a share, i.e., how they pump up its price and when the price increases too much, they dump it on the retail investors.
Also Read:- 5 Steps to get People rich from stocks
Tips to Avoid Operator’s Trap in Stock Market
- Avoid Stocks with Sudden volume changes.
- Avoid Stock tips from free Instagram and Telegram pages.
- If a stock has given very high returns in a few days or a few months and there is no improvement in the fundamentals of that company, then the chances of being a scam are high. Fundamentals include the company’s balance sheet, profit and loss statement, and quarterly results. If the sales are increasing then the stock price will also increase but if the sales are not increasing and the stock has given very high returns without any improvement in fundamentals then there are more chances of the operator’s controlling the stock of that company.
- Avoid stocks hitting upper or lower circuit limits. Because due to this there is difficulty in buying and selling that stock.
- Avoid Promises of Guaranteed returns.
