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#1 09-04-2019 14:43:28

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JFD Bank: interview with Andrew Stoychev on market manipulation

JFD Bank: interview with Andrew Stoychev on market manipulation and how to protect oneself
Andrew Stoychev has just been appointed Executive Director of JFD Bank -(formerly JFD Brokers).

Following the purchase of the Germany's ACON bank group, the company changed its name and merged its services together for both regular traders and institutional investors under the JFD Bank name, making its new website for all services provided by the FinTech consortium.

Here's an interview with Andrew who gives us a sneak peek at how brokerages manipulate things, and how traders can protect themselves against market manipulation.

Can brokerages manipulate pricing and therefore cause their clients to lose money?

We first must distinguish between what brokerages can do and what they expressly decide to do. There are various ways that brokerages can manage their prices, but in most cases we're talking about spreads, execution speed, swap rates, etc. In today's increasingly regulated environment, brokerages compete in order to provide better conditions and attract new clients. In addition, traders can access multiple platforms and can easily spot differences between brokerages. With this in mind, price manipulations on trading platforms are not in the the brokerage's best interest.

For example, as far as we're concerned, we constantly watch for the timeliness and quality of the monies we receive from our partners to ensure that we always offer the best conditions to our traders.

Does stock market manipulation still occur nowadays?

Regulators have been super quick to crack down on market manipulation practices. Also, there are many internal tools used by financial institutions, mutual funds, etc. to reduce the occurence of such events. But, despite everyone's efforts, there are still shady individuals that try to manipulate the market.

How should traders protect themselves then from such manipulation?

The best thing a trader can do is to trade in markets he's fully familiar with. The more you know about a trading vehicle, the less likely you are to be fooled by false info. This is especially the case for small, illiquid assets and "penny stocks" because their prices are much easier to manipulate. Clients must also be familiar with their brokerage and be assured that they won't be ripped off.

Can a country's regulator quickly spot market manipulation?

This isn't always easy. Some schemes can go on for a really long time before they're spotted. Sometimes the authorities call on "whistleblowers" to obtain intelligence on these activities and then implement regulatory protection. Although it's challenging and time-consuming, the fines that are imposed make it cost-prohibitive for those banks that are tempted to manipulate.

How do brokerages profit from short selling?

In short - no pun intended - by charging interest on a trader's short position. Short selling is possible because of the contract between the brokerage and the holders of buy positions in a company to take the shares of the latter and lend them to short sellers. Because they borrow someone else's assets, short sellers pay back interest as compensation.

How does short selling lower overall prices?

Short selling is often seen as being bad because it can be used by stock/share manipulators to increase sales pressure on a stock and lower a company's overall listed price. Short selling limits of certain assets may even increase suspicion. However, the reality is that short selling adds liquidity to the market. It also acts as a "reality test", so to speak.

What is "Pump & Dump", and is this sort of practice allowed?

Pump & Dump is direct manipulation of a market, so it is forbidden by law. In short, you purchase a share, then make fake or exaggerated statements so that the price goes up, and then you sell it. When trading low-volume stocks, large purchases encourage other investors to also engage in buying, which drives up the price. But the goal of the manipulators is to get rid of their stocks as soon as the price has climbed enough. This can entail the quick sinking of prices and be a catastrophe for a small-time investor.

"Anything worth having is worth going for - all the way." - J.R. Ewing


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