Market manipulation plays a significant role in stock investment risks, as it can distort market prices and mislead investors. Manipulation occurs when individuals or groups intentionally influence stock prices to create artificial demand or supply, typically for personal gain. Common methods include pump-and-dump schemes, spoofing, and insider trading.

In pump-and-dump schemes, manipulators inflate a stock's price by spreading false information, encouraging unwary investors to buy. Once the price rises, they sell their shares at a profit, causing the stock to plummet and leaving other investors with significant losses. Spoofing involves placing large orders to create the illusion of demand or supply, only to cancel them before execution. Insider trading, where privileged information is used for unfair advantage, undermines market integrity and creates an uneven playing field.

These activities not only harm individual investors but also erode trust in the broader financial markets. Retail investors, who may lack the tools or experience to identify manipulation, are especially vulnerable.

To mitigate these risks, regulatory bodies like the SEC and FINRA monitor markets and enforce laws against manipulative practices. Investors can protect themselves by focusing on fundamentally sound stocks, avoiding speculative trades, and staying informed about potential red flags.