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Manipulations in the Stock Market

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NEPSE trading

Manipulations in the Stock Market

Manipulations in the stock market can pose significant risks to investors. Failing to navigate these risks can lead to substantial losses that may discourage us from returning to the market. Therefore, it is essential to develop strategies to protect ourselves from such manipulations.

Preventive measures are more effective than searching for remedies after falling prey to manipulations. While the Securities Board of Nepal (SEBON) and the Nepal Stock Exchange (NEPSE) attempt to curb these manipulations, relying solely on them is not enough. Here are some common manipulations in the stock market and ways to avoid them:

1. Pump and Dump

In a pump and dump scheme, manipulators artificially inflate a stock's price by spreading false rumors. Once the price increases, they sell off their shares. After they have sold, the stock's price starts to fall.

How to avoid it: Verify information from social media, unauthorized online portals, or friends. Conduct thorough research on any company before investing, and do not follow promotions or rumors blindly.

2. Insider Trading

Insider trading involves trading a company's shares based on confidential information from insiders, such as executives, directors, or employees. This practice can significantly impact the market unfairly.

How to avoid it: Do not trade based on non-public information. Educate yourself on insider trading laws and report any suspicious activities to regulatory authorities.

3. Online Trading and Hacking

Hackers may gain unauthorized access to online trading accounts to conduct unauthorized transactions or withdraw funds.

How to avoid it: Use strong, unique passwords for your online trading accounts. Avoid conducting transactions on shared computers, mobile devices, or other public equipment. Regularly monitor your account and report any suspicious transactions immediately.

4. Stock Cornering

Stock cornering occurs when an individual or group buys up a significant amount of a company's shares to create a shortage and drive up the price or to make it appear that the demand for the stock is high through artificial buy orders.

How to avoid it: Invest only in companies that align with your financial goals. If a stock's price is rising beyond reasonable expectations without any justifiable cause, it may be wise to sell.

General Tips to Avoid Market Manipulations

1. Be Diligent: Always conduct your transactions diligently. Seek advice from experts and educate yourself about the investment instruments (securities) and the relevant laws and regulations.

2. Avoid Greed: Recognize that a rapidly rising market is a warning sign of potential greed. This is a time to conduct further investigation.

3. Report Suspicious Activities: Report any suspicious activities to the relevant regulatory authorities.

By adhering to these strategies and maintaining a disciplined approach to investing, you can protect yourself from manipulations in the stock market and make informed investment decisions.

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