SIE (Securities Industry Essentials) Practice Exam

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What type of market manipulation involves making large rapid trades to elevate stock price before shorting the stock?

  1. Wash trading

  2. Pump and dump

  3. Insider trading

  4. Spoofing

The correct answer is: Wash trading

Explanation Wash trading is the type of market manipulation that involves making large rapid trades to elevate stock price before shorting the stock. This tactic is used to give the illusion of high demand for a stock in order to attract more buyers and drive up the price. The other options listed are incorrect because: - Pump and dump involves inflating stock prices by spreading false or misleading information before quickly selling off the overvalued stock. - Insider trading involves using confidential information to buy or sell stock, which is different from manipulating stock prices. - Spoofing involves placing fake orders to manipulate the supply and demand of a stock, but it does not necessarily involve rapid trades to elevate stock prices before shorting the stock.