EODHD Academy
‹ How Markets Work Lesson 14 of 17
Contents Lesson 14 of 17

2 min read · foundations

What counts as cheating in markets?

The line between clever and criminal in markets is sharper than movies suggest. Knowing the big three offenses protects you twice: from committing them accidentally, and from being their victim.

The big three

  • Insider trading. Trading on material, non-public information — the CFO buying shares knowing an unannounced merger, the friend she tips off. The essence: using information the other side of your trade cannot have. Executives CAN legally trade their own stock (you saw the filings); the crime is trading on secrets. Penalties: disgorgement, fines, prison.
  • Market manipulation. Creating false appearances: pump-and-dump (hype an illiquid stock through chats and posts, sell into the excitement — the classic retail trap you'll actually encounter); spoofing (placing giant fake orders to fabricate demand, cancelled before execution); wash trading (trading with yourself to fake volume — endemic on unregulated crypto venues, a preview of that domain's risk course).
  • Fraud & Ponzi schemes. Simply lying: fake accounts (Enron), fake returns paid from new victims' deposits (Madoff — steady 1% monthly for decades, the too-smooth line that violates Course 1's volatility lesson).

Your practical scam radar

The same patterns, small-scale, will reach YOUR inbox one day. The tells are stable across a century:

  • unsolicited "hot tips" on tiny stocks or tokens (why would a stranger enrich you?);
  • guaranteed high returns (the fraud signature from Course 1);
  • urgency — "act before Monday";
  • secrecy — "regulators/banks are hiding this."

Each maps to a crime you can now name. The scam radar isn't cynicism; it's pattern recognition.

Why enforcement is loud

Regulators publicize cases deliberately — deterrence is the product. When you read "hedge fund manager charged with insider trading," you're watching the fair-play promise from the previous lesson being enforced in public.

Try it now

  1. Recall (or find) one famous market-fraud story — Enron, Madoff, or a recent pump-and-dump case.
  2. Classify it: insider trading, manipulation, or fraud?
  3. Write your own three-line scam checklist from the radar above — it will earn its keep within a year, guaranteed... which, as you now know, is exactly the word that should trigger it.