Ever wonder why market manipulations occur? The answer is simpler than you think. For many, especially the ultra-rich, ethics often take a back seat when money is on the line. When they see retailers obsessing over price movements instead of fundamentals, they seize the opportunity to maximize profits.
The problem is compounded by retailers using leverage, which forces them to exit positions during strong price fluctuations. Here’s how the manipulation works: Imagine you’re a billionaire with 15% of your net worth in cash. You notice a supply shock on the horizon, but so does everyone else. If you start buying now, holders won’t sell at low prices. So, what do you do? You sell in large quantities to drive down the price, forcing others to sell out of fear. Then, you swoop in and buy at those lower prices.
But here’s the kicker: If everyone in the market were wise enough, they’d buy up all the assets the manipulator sold, stabilizing the price. The manipulator would then have to buy back not only their original 15% but also what they sold, at the same price, effectively losing out.
The real issue? Retailers often aren’t wise to these tactics. They get fooled easily, especially when using leverage, making these manipulative schemes possible.
So, what’s the takeaway?
1. Avoid leverage when trading, whether you’re going long or short based on fundamental analysis. Shorting should only be done on overvalued assets as a hedge during times of uncertainty—nothing more.
2. Don’t get caught up in short-term price action. Focus on the fundamentals instead.
Stay wise, trade smart, and protect your assets.