Cornering a market means to gain control over a significant portion of the supply of a particular commodity or asset, in order to manipulate prices to one’s advantage.
This can be done by buying up a large quantity of the asset, or by controlling key production or distribution points.
Markets Where Cornering Occurs
There are several different markets where market cornering can occur, including:
This is where physical goods such as gold, oil, wheat, and other raw materials are traded.
Market cornering in these markets can be used to drive up prices for the commodity in question, which can be especially damaging in markets for essential goods.
This includes stocks, bonds, and currencies.
Market cornering in these markets can be used to manipulate the prices of stocks, bonds, or currencies for personal gain.
Real estate markets
This is where properties such as houses, land, and buildings are bought and sold.
Market cornering in these markets can be used to drive up prices for properties in certain areas, making it difficult for others to afford to buy.
In recent years market cornering in crypto has become more common with the emergence of digital currencies like Bitcoin, Ethereum, etc.
Market cornering in these markets can be used to manipulate the prices of these digital currencies.
In all these cases, market cornering can be illegal and can result in harm to others in the market and the overall economy.
It is often seen as a form of market manipulation, and is typically regulated by government agencies such as the Securities and Exchange Commission (SEC) in the US.
Types of Market Cornering
Poop and Scoop
Poop and scoop market cornering is a type of market manipulation that involves sharing bad information about an asset to drive down its price before buying up a large quantity of it.
The idea is to buy something at an artificially low price.
Pump and Dump
Pump and dump is a form of market manipulation where a group of individuals, sometimes referred to as “pumpers,” artificially inflate the price of a stock/asset through false and misleading positive statements.
Once the price has been driven up by the hype, the individuals will then “dump” their shares, selling them at the inflated price and causing the price to crash for the unsuspecting buyers.
Market cornering refers to a situation in which a trader or group of traders controls such a large percentage of a stock or commodity that they are able to manipulate the market price.
What Regulations Are in Place to Precent Market Cornering?
There are several regulations in place to prevent market cornering, including those enforced by government agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
These regulations prohibit manipulative and fraudulent practices such as insider trading, wash trading, and false reporting of market information.
Additionally, the SEC has rules in place to prevent individual investors or groups of investors from accumulating a controlling stake in a publicly traded company without disclosing their actions to the market.
The SEC also has rules to prevent manipulation of the securities market by traders and investors. The CFTC is responsible for the regulation of futures and options markets, and it also prohibits manipulative and fraudulent practices.
Cornering Example: Bunker Hunt and the Silver Market
In the 1970s, Bunker Hunt and his brothers Lamar and William Herbert attempted to corner the global silver market by buying up large quantities of physical silver and futures contracts.
They believed that the price of silver was undervalued and that they could make a large profit by driving up the price through their market manipulation.
The Hunts’ buying caused the price of silver to increase rapidly, from around $1.50 per ounce in 1973 to a peak of $50 per ounce in 1980.
This led to a rush of speculators entering the market, as it became a “hot asset,” further driving up the price.
However, the Hunts’ plan ultimately failed when the price of silver began to fall in 1980 and they were unable to meet their financial obligations.
The fallout from their actions was severe.
The Hunts’ were ruined and many investors who had followed the Hunts into the market lost significant amounts of money.
Additionally, the manipulation of the silver market by the Hunts led to increased scrutiny and regulation of commodity markets by the government.
The Hunt brothers were charged for his manipulation of the silver market in 1985. Later, in 1989, he was banned from trading commodities by the CFTC and fined $10 million.
Hunt Brothers Silver Squeeze
FAQs – Market Cornering
Has cornering the market ever worked?
Cornering a market, or attempting to control a large portion of a market in order to manipulate prices, is a difficult and risky strategy that has had mixed success throughout history.
In some cases, traders or investors have been able to temporarily control a market and drive up prices, such as the Hunt brothers’ attempted cornering of the silver market in the 1970s.
However, these efforts often fail in the long term. This is because they become such a large part of the market that they are vulnerable to being squeezed.
Additionally, the price increases caused by market cornering are often not sustainable and eventually collapse. This leads to significant financial losses for the cornering traders or investors.
Other historical examples include the market cornering of the onion market in the 1930s and the wheat market in the late 1800s, both of which eventually failed.
In general, cornering a market is considered unethical and illegal, and regulators have put measures in place to prevent it. Additionally, market participants and investors are becoming increasingly savvy and better equipped to identify and counter market manipulation, making it harder for any one person or group to successfully corner a market.
Why is cornering a market so desirable for a seller?
Cornering a market can be desirable for a seller because it allows them to control the supply and demand of a particular product or commodity, enabling them to charge higher prices and increase profits.
Additionally, a seller who corners the market may be able to exert significant influence over the industry and its competitors.
Conclusion – Market Cornering
Market cornering refers to the practice of a person or entity accumulating such a large share of a particular market that they are able to control the supply and demand of that market.
This can be achieved by buying up a large portion of the available assets, such as stocks, commodities, or real estate, or by using other tactics such as price manipulation or collusion with competitors.
When a market is cornered, the cornering entity can charge higher prices and increase profits, as there is limited competition and no other options for consumers.
However, market cornering is illegal in most jurisdictions and can be a violation of antitrust laws, as it can lead to higher prices for consumers, reduced innovation, and reduced competition.