What is Poop and Scoop?

Disciplined investors identify, research and understand the stock before trading or investing. However, novice traders are often tricked by unsolicited stock tips, recommendations, or groups where such information is shared. Not every tip shared, maybe correct and for the benefit of investors. They can be a part of manipulation. Such malicious activities result in losses for the investors or traders.

Market manipulation is an intentional effort to influence the price of financial securities, and ultimately the financial market. The efforts aim at either pushing the stock price up or down. It is a kind of scam that is attained to trap the common investors. More often this happens with penny stocks as they are easy to manipulate. Some of the ways of market manipulations are pump and dump, painting the tape, wash trades, poop and scoop, etc.

This article limelights what is poop and scoop, how it works, and an example for better understanding.

What is Poop and Scoop?

Poop and scoop is a manipulative trading strategy applied by some market participants to influence stock prices. Poop and scoop is an illegal practice where a group of market participants tries to deflate the stock price by spreading wrong information. They, then, buy the stock at deflated prices and gain when the public gets to know about the misinformation.

By using the poop and scoop method, market manipulators take the advantage of panic selling behaviour of investors and traders. Poop and scoop creates a profitable opportunity for market manipulators, but it misguides the investors and it is against the interest of investors in the financial market.

The poop and scoop is the opposite of the pump and dump strategy. The pump and dump strategy increases the stock price by spreading positive false and misleading statements about a particular stock. In pump and dump, market manipulators get the benefit of high market value for their holdings. The pump and dump strategy is believed to have more potential as compared to poop and scoop.

According to the Securities Exchange Act of 1934, poop and scoop activity is considered a part of market manipulation and securities fraud. It is strictly prohibited and punishable by the Securities Exchange Commission.

How does Poop and Scoop work?

It starts with a well-informed group of market participants who intend to lower the price of a particular stock and buy that stock at a discounted price. They attempt to circulate negative rumours, and wrong information and misguide the general public about a certain stock. This is termed ‘poop’ in this context. If the non-informed investors get trapped by such attempts, they start selling that stock. As a consequence, the price falls significantly.

The group of market manipulators, then, buy the stock at the dropped price. This is termed as ‘scoop’. After a time, when the general public realizes that the rumour and information were invalid, the demand for that stock surges again. The stock price marks the original level or goes above that. The manipulators can get a higher market value of their holdings due to the price surge.

Example of Poop and Scoop

Pranav, Ruchit, and Kenil have inside information about the company ABC Ltd. They know that the company is going to be merged with industry giant XYZ Ltd. This news is likely to move the share price up when the merger will be announced to the public.

Pranav, Ruchit, and Kenil try to circulate wrong news and convince the shareholders that the company is performing poorly and the stock price will fall badly further, so they should sell the stock. They intended to buy the stocks at a lower price by misguiding the investors. Some of the shareholders believed their words and started selling off their stocks, and the price fell.

As forecasted, all three of the manipulators bought the stock at a discounted price. After some time, ABC Ltd. company announced its merger with XYZ Ltd. With the news, stock prices started moving up and marked a peak. Consequently, Pranav, Ruchit, and Kenil exited the stock with huge profits.

To wrap up, poop and scoop is one of the illegal ways of influencing the stock price. In poop and scoop, market manipulators try to push the stock price down and try to buy the stock at a lower price and sell the stocks at a high price. Investors and traders must beware of such market manipulative practices.