Manipulation

A market assumes prices are formed honestly. Some have found ways to cheat on the price itself.

Libor was the world's benchmark rate. Every day, in London, major banks declared the rate at which they could borrow.

An average was drawn from it. It was used to calculate loans and contracts worth hundreds of trillions of dollars.

The problem: this rate was declared, not observed. And traders asked their colleagues to nudge it, in the direction of their bets.

During the crisis, some banks also declared rates lower than reality, to look stronger.

In two thousand twelve, the scandal broke with Barclays. Its boss resigned. In total, fines exceeded nine billion dollars.

Libor has since been abandoned. The new benchmark rates rest on real transactions, not declarations.

The currency market saw the same thing. Dealers from rival banks shared their orders in private chat rooms.

They coordinated to move a benchmark rate in their favour, set at four in the afternoon in London.

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In two thousand fourteen and two thousand fifteen, several major banks paid billions of dollars in fines.

Third trick, more technical: spoofing. Placing orders you never intend to carry out.

Say a trader wants to sell high. He displays huge buy orders, just below the price.

Others believe in strong demand, and the price rises. The trader sells, then cancels his fake orders in a fraction of a second.

In the United States, it has been explicitly banned since two thousand ten. In two thousand twenty, JP Morgan paid over nine hundred million dollars for these practices.

Last trick, the oldest, aimed at individuals: the pump and dump. Inflate, then empty.

In the past, tiny shares were sold by phone from boiler rooms. Today, it goes through forums and Telegram groups.

The script: the organisers quietly buy a small asset. Then they hype it: rumours, promises, countdowns.

Say they buy at one euro. Followers rush in, the price climbs to three euros. The organisers sell everything.

The price collapses to eighty cents. A follower who came in at two euros fifty loses sixty-eight per cent.

The organisers won, the latecomers paid. There was never any other source of profit.

Four manipulations, one target: the price, the piece of information everyone believes is reliable.

For you, one reflex. When you are pushed to buy fast a tiny asset nobody talked about yesterday, ask yourself who is selling you their stake.