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Is The Stock Market Controlled By Stock Operators And Brokers?

Today I received an email from one of my subscribers that I believe most of the traders think most of the traders think the same way. So I have shared his email here.

What he believes?

That the stock operators and brokers control the stock market price action. Since they want traders to lose money – most of them play against them and operate the stock in such a way that it almost always hits the stop loss – thus making them money.

However, let me tell you that this is simply not true. Assuming that even if its true, stock price manipulation by any mean other than demand and supply is illegal in India. One day or the other they will get caught and their license will be cancelled. No broker can take a risk with their business license for a few thousands rupees a month. But the main reason is that stock brokers are just that stock brokers, they can help us to get a trade go through, they do not have access to main sources/resources where final transaction between a seller and a buyer is done. Therefore there is no way they can manipulate the prices.

Having said that, stock price can be manipulated by illegal means, but right now this post talks about brokers only – so I leave that for another day.

Here is his email:

Hi Dilip Sab, many thanks for all your emails, I am gathering some confidence in your Tutorials, I have some questions. I have been Trading in Equities for the last 4 years and have finally lost huge money, not because of my wrong market analysis, but SYSTEM itself is corrupted. I was using STOP LOSS wisely. Say at placing order after market stabilizes at entry price and gradually keep raising as the price move up. Always the operator at the Board reverse back and cancels and climbs up fast, even if I think of re-enter the stock, it will be at much higher price thereby reducing my profits. Then I thought of putting STOP LOSS at the purchase price itself. Here believe me, the operator starts coming down slowly even 20/30 rupees and cancels and climb up very fast where re-entry is at very much at very high price, so net result is loss. This is when the market is in Ist & 2nd hour.

The next experience is, if the market falls, operator cross the STOP LOSS mark duly cancelling the TRIGGER PRICE and go down very fast, wherein you have to use SQUARE OFF option which is always at a very low price.

Next experience is say you have to sell of the stock when the movement is not there, by putting SELL option say for example Price of 100, the operator will never cross that 100 mark, on the contrary he keep playing between 90-99 and to induce excitement, even he will touch 99.95, even 100 and stage back. Unless it crosses 100 sell off option will not be executed. It invariably forces one to use the SQUARE OFF option leading to considerable loss.

Next experience, say. if I think I am very wise, NO, and if I modify my sell price to say 99.50 and confirm, price falls very rapidly and quickly to say to 99, (This may be programmed in the Computer in advance) somehow you are forced to use SQUARE OFF option which is always say 3 or 4 Rupees less.

This is how I have lost my wealth. I consider this is purely a GAME of Stock operator and Broker AND not all it is Shares Buying/Selling most of the time, of course there may be one or two exceptions.

Having Stopped Trading in Equities, I want to try FUTURE/OPTIONS in ONLY NIFTY to recover some of my losses. Please advise me, will same thing happens in F&O also, when you say talking of HEDGING, is the same trick exits there also and how effective is Hedging and Rules connected with if it fails to protect my money which will be the very huge loss and end of my Trading career.

Now I shall await for your Expert Opinion to think further in the matter.

With regards,
H Ramachandra

Since you have read the email, think hard. Is what he is saying possible? No.

I have already given the reason above that brokers cannot at will manipulate any option or strike price. Its a global pricing. Someone in Africa will also see the same LTP (last trading price), as someone in India. Billions of trades are going on when the markets open for trading – it is virtually impossible to manipulate all these trades in a particular stock or indices. Just to make a few bucks from one single trader a broker will not try to do anything illegal.

Moreover systems are in place to control price manipulation.

Still one cannot completely deny that some powerful brokers have taken unethical paths to make profit from their clients money or stock holdings. Please note that when they do all or majority of their clients suffer. When they decide to do something illegal they want to make it big not small so that if they do not get caught they end up making millions.

In November 2019 SEBI banned Karvy Stock Broking Ltd (https://www.karvy.com/) for pledging clients’ shares and transferring Rs 1,096 crore worth of clients’ securities to its group company Karvy Realty Pvt Ltd WITHOUT their consent.

Once this was known investors with Karvy demat accounts had to transfer their securities and close their Karvy demat accounts. It will be considered as off-market transfer and investors need not pay any capital gains tax. Transferring select securities attracts charges, transferring all securities does not.

As you can see investors did suffer for some time but later were able to exit from Karvy. So yes stock brokers can manipulate the portfolios of their investors but not pricing of stocks.

Please do not worry after reading the above as SEBI has put in place stricter rules and regulations for stock pledging for all brokers after this fiasco.

However, investors still need to be vigilant, as dishonest brokers may find ways to subvert the system. Today discount brokers have given a though competition to small traditional brokers. But even a big broker may try something that may get you in a problem. Struggling with cost of survival, many big brokers are known to indulge in such practices. I gave one recent example above.

Which broker is likely to do such malpractices?

Brokers who over-leverage themselves resort to such doings.

That should not stop investors to invest in stock markets. You can safeguard against fraud. Here are some tips:

1. Make sure your mobile number and email ID records are updated with the depository.
2. Check SMS or email statements sent by depository after every transaction in Demat account.
3. Ask the broker to furnish ledger balance and stock statements at least once in 90 days.
4. In case of fraud or inaction by broker, make timely complaint to the depository.
5. Avoid keeping excess money in broking account; transfer money from savings account only at time of purchase.
6. Avoid keeping signed delivery instruction slip with broker for offline trades.
7. Open your Demat account with banking brokers for better safety.
8. Study the financial health of the broker

Some other safety tips to keep investments safe:

You can register on the portals of either NSDL or CDSL and get all details related to your holdings from these depositories online or using their mobile applications. For example, CDSL offers an ‘Easy’ facility to view the Demat holdings and transactions and an ‘Easiest’ option to view and transact in your Demat account.

Users need to reconcile their holdings regularly with depository statements — specifically number of shares and not value of shares — sent every month. NSDL sends an email every month of all holdings in stocks and mutual funds which you must check.

Is there any solution to any fraud if it happens?

The only practical solution to any such frauds in the financial sector is complaining to SEBI immediately after noticing any discrepancy or malpractice. Before posting your problems on social media, you should promptly bring the issue to the notice of the concerned authorities.

Hope the information helps.

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About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

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