Market Manipulation

Trying to rig the game.

#Plain-English Definition

Market Manipulation involves artificially inflating or deflating the price of a security or prediction market share to mislead other traders or trigger specific outcomes.

In prediction markets, this often takes the form of a "whale" buying a huge amount of "Yes" shares to make it look like a candidate has a 99% chance of winning, hoping to influence public perception or trigger a payout in a related market.

#Common Types

1. Wash Trading: Buying and selling shares to yourself to create fake volume and activity.
2. Pump and Dump: Hyping up a market to attract buyers, then selling your shares at the inflated price.
3. Spoofing: Placing large orders that you intend to cancel before they are filled, just to trick others into thinking there is high demand or supply.

#Why It's Harder in Prediction Markets

Unlike stocks, prediction markets have a resolution date and a ground truth.

• If you manipulate the price of "Will it rain?" to 99% "Yes" when it is sunny, you are essentially giving away free money to anyone who looks out the window and bets "No".
• Arbitrageurs usually step in to correct the price and profit from the manipulator's irrational spending.

#Key Takeaways

• Manipulation distorts the "Wisdom of Crowds."
• It is illegal in regulated markets (like Kalshi).
• In prediction markets, manipulation is often expensive and self-correcting because it creates profitable opportunities for honest traders.