Ghosting is an illegal strategy where two or more market makers manipulate the price of a security, either to drive it down or artificially inflate it. It violates investing principles and can result in fines, market bans, or prosecution. This practice is illegal in most countries due to its potential threat to the economy.
Ghosting, in financial circles, is an unethical and usually illegal strategy in which two or more market makers try to make changes to the price of a particular security. The attempt may be aimed at driving down the price of the shares or artificially inflating the value of the shares for a period of time. Many countries around the world have specific laws prohibiting ghosting, with penalties for violating those laws ranging from fines to prison terms.
The ghosting process normally requires a minimum of two partners to be effective. A market maker, which can be a company or an individual, will work to raise or lower the stock, depending on the desired outcome. This can be accomplished in a number of ways, usually by manipulating information that makes the price appear to be migrating in response to prevailing market conditions or the conditions of the company issuing the security. At the same time, the second partner will use similar methods involving the same stock, often using strategies that either obscure the first partner’s efforts or enhance the results of the first partner’s actions.
The name of this unethical and often illegal practice comes from the fact that everything is done clandestinely and seemingly intangible. The general public, which includes most investors, is unaware of who is producing this artificial change in the value of the shares involved. Because moneymakers will go to great lengths to remove any evidence that they are engaged in a price-fixing scheme, their presence in the strategy is much like that of a specter: hard to spot and even harder to implicate in the recent shift in the value of shares.
Ghosting is considered unethical because it violates the basic principle of investing that ensures reasonable competition among all moneymakers in the market. When the value of a particular security is tampered with, either to increase or decrease in value and cause investors to start selling the security for less than its actual value, it is impossible for investors to make decisions based on factual information. As a result, the ability of majority investors to earn a return for their efforts is impaired, while a select few are able to profit from price fixing.
Being convicted of ghosting can have serious consequences. Depending on the nature of local laws, the market makers involved may face heavy fines, not be involved in the stock market for a period of time, or even be prosecuted. Many countries around the world see ghosting as a threat to the economic well-being of not only their individual nations but also a potential threat to the world economy. As a result, there are few countries left in the world that do not have specific regulations against this type of activity.
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