What is "Artificial liquidity" ? How do "Operators/ Manipulators fool Retail Investors & Traders ?

Let us just start by saying that “Yes” there is such a term and it is pretty much real.

When i see the deals section in terms of Trading activity of some stocks, it is quite visible that some XYZ company/ proprietary firm bought 1 crore shares at say 100 rupees and sold 1 crore shares at rupees 99.70 or 100.30 on the same day or the next day.

Now that to me indicates something fishy and that is What i call “Artificial liquidity”.

Why does anyone do that ?

The stock exchange has many criteria for listing a company and even after the shares are listed, there are a few criteria which need to be fulfilled in order to remain listed on the stock exchange.

Basically some percentage of the free float shares of a company must be traded every 6 months or so for that company to stay listed on the exchange.

Moreover, the companies that are looking forward to become eligible for a higher standard of grouping on the stock exchange can hire a proprietary firm or firms behind the curtains to do so.

Companies that aim to be eligible for their stock to be included at the “Futures & Options” segment also have to fulfill these kind of liquidity criteria to show it to the stock exchange that secondary market for the company's shares is strong and the turnover meets the requirements.

However there is another factor of delivery percentage but that can also be managed between a few proprietary firms or brokers.

This activity is known as "Market making" to the broad audience.

It is more of a service provided by some rather than anything else. 

This “Artificial liquidity” sometimes confuses Retail investors and traders who think that there was some major buying or selling in particular script when in reality there was nothing like that, we got bulk deals and block deals to figure that out.

On some days, the real trading does take place and due to the nature of speculation on the prices by Retail investors and traders they get stuck into such low liquidity/ low volume stocks.

Thinking of making money by buying a good chunk of penny stock with a sizeable portion of your savings does not seem to appeal to me.

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