Looking for Painting The Tape?
What does painting the tape mean in simple terms?
What’s important to know?
In this article, I will break down the meaning of Painting The Tape so you know all there is to know about it!
Keep reading as I have gathered exactly the information that you need!
Let me explain to you what painting the tape means in stock trading once and for all!
Are you ready?
Let’s get started!
What Is Painting The Tape
Painting the tape is an expression used in stock trading where market players manipulate the stock price by buying and selling securities among themselves.
By trading securities between themselves, market players are able to create a false belief or illusion that there’s more interest for a particular stock thereby leading other investors to purchase the stock driving the price higher.
Those who engage in this type of market manipulation intend to artificially create interest for a particular stock driving the stock price higher so they can generate a profit.
Since “painting the tape” is an illegal activity, those who are found to artificially attempt to manipulate the stock price will be heavily sanctioned by the Securities And Exchange Commission.
Why It’s Called “Painting The Tape”
Painting the tape is a type of stock price manipulation where certain market players attempt to artificially boost the price of a stock so they can profit from it.
The term originates from the era when stock prices were presented on actual ticker tapes.
The stock market originally used ticker tapes to print the details of a stock trade that was transmitted by telegraph.
A printer was used to print the stock price on the ticker tapes communicating the stock price on a piece of paper.
The stock ticker machine would print the stock ticker and quote on long rolls of thin paper.
When stock quotes were printed, there was a mechanical sound that came from printers for printing the information on a narrow paper strip.
The stock market no longer uses ticker tapes and ticker print machines to communicate stock tickers and quotes.
Today, stock quotes and ticker symbols are now communicated electronically.
“Painting the tape” refers to the manipulation of the stock price to be printed on the “ticker tape”.
“Painting” refers to giving the “illusion” that there’s a higher interest for a particular stock than there truly is.
Painting The Tape Definition
How do you define painting the tape in stocks?
According to the Nasdaq, painting the tape is defined as:
Illegal practice by traders who manipulate the market by buying and selling a security to create the illusion of high trading activity and to attract other traders who may push up the price.
How Painting The Tape Works
The way market players paint the tape is by creating the illusion that there’s a higher demand for a particular stock.
Market players paint the tape by trading a particular stock between themselves thereby increasing the total trading volume for a particular security.
The first step is for a market player to purchase a particular stock in large volumes.
Then, the market player will sell the stock to another player who is taking part in the same scheme.
That second party will sell it to another party, again part of the same scheme.
By doing so, the trading volume for that stock artificially goes up.
Other investors who are not aware that the tape is being painted will notice higher trading volumes and see that the stock price is going up.
Unsuspecting investors may decide to purchase the stock driving the stock price up even further.
When the stock price reaches a point that is high enough for the market manipulators, they will sell the stock to cash their profits.
However, when they cash out and stop the artificial trades, the stock price will tank leaving the other investors at a loss.
Marking The Close
Another way to paint the tape is to mark the close.
Market manipulators, particularly brokers, traders, and other investment professionals, may tend to paint the tape on stock right before the market close.
The objective is to manipulate the stock price in such a way that the price of the stock is boosted right before the markets close.
The large trade volume on stock, particularly prior to the close of the market will give the appearance that investors are valuing the stock.
This way, since many stocks and securities are priced using their closing stock price, the manipulators increase their chances of being able to generate a profit from this market manipulation scheme.
Brokers and traders may find another way to paint the tape by spreading the purchase of stock on multiple trades.
The objective here is for the broker to artificially create additional transaction numbers on a particular stock.
If the broker was purchase 50,000 shares of a stock, it will do so by spreading the purchase over 250 transactions of 200 shares.
This way, other investors may believe that there’s a higher level of interest for the stock and be tempted to purchase them.
Painting The Tape Example
Let’s look at a concrete example to see how a market player can manipulate the stock price and profit from it.
Imagine that Jack holds 2,000,000 shares of a penny stock worth $1.00 per share.
He had originally bought his shares at $2.00 per share and is now at a loss.
Jack wants to manipulate the stock price so that he can sell his shares at a profit.
Jack contacts two of his best friends, Mary and Tim to paint the tape on the stock.
The next day, Jack, Mary, and Tim start purchasing more of the company stock artificially raising the trading volume for the security (paying a low price for the stock).
Other investors take notice of more volume and believe that perhaps there may be good news coming that will drive the prices up even further.
Investors also start buying and the price of the stock goes up further eventually reaching $5.00.
At that price, Jack, Mary, and Tim all sell their securities making a profit as they had bought the stock at a price much lower than $5.00.
Particularly, Jack was able to turn his 50% loss to a 150% profit.
Paint The Tape Takeaways
So there you have it folks!
What Does Painting The Tape Mean
In essence, painting the tape is the practice of manipulating the stock price with the intention of making a profit.
In most cases, stockbrokers, portfolio managers, traders, and other investment professionals who have access to a large portfolio of stocks may paint the tape to generate profits or reduce their losses.
Painting the tape is an illegal practice where those who engage in such activity will be severely sanctioned.
Those who paint the tape in a manipulative way to influence trading data for the ultimate objective of making money can suffer significant consequences in their careers and even face criminal charges.
The SEC and the authorities regularly monitor stock trades for suspicious activity and will investigate any trades or transactions that may appear to be manipulative.
Now that you know what is painting the tape, how it works, and why it’s illegal, good luck with your research and investigations!
My Investing, Business, and Law Blog
By the way, on this blog, I focus on topics related to starting a business, business contracts, and investing, making money geared to beginners, entrepreneurs, business owners, or anyone eager to learn.
I started this blog out of my passion to share my knowledge with you in the areas of finance, investing, business, and law, topics that I truly love and have spent decades perfecting.
You may find useful nuggets of wisdom to help you in your entrepreneurship journey and as an investor.
I’d love to share the insider knowledge that I’ve acquired over the years to help you achieve your business and financial goals.
If you enjoyed this article on painting the tape meaning, I recommend you look into the following terms and concepts. Enjoy!
You May Also Like Related to Painting The Tape In The Stock Market
Marking the close
Stock market quotes
What is a corner
Related to Stock Trading
Dark pool trading
Lot of shares
Market risk premium