Front Running - Illegal Trading Activity

What is Front Running


Front running is an illegal trading activity where a brokerage firm or manipulator buys or sells a security before executing their client's order.  This allows the brokerage firm to enter at a low price and the subsequent orders of their clients pushing the stock higher. 

How Front Running is Executed


Front running can come in two forms: (1) brokerage firms and (2) analysts.  While there are a number of manipulating tactics these two are the ones which are executed on a large scale.

Brokerage Firms


A brokerage firm will know when there are a number of orders for a stock at a particular price.  The brokerage firm will enter a buy order at a level just before the orders are executed for their clients.  This allows the brokerage firm to ride the wave up on the buy orders from their clients.  This manipulation works best when the brokerage firm places the order prior to executing a large block order.

Analysts


As we all know, an analyst recommendation can make or break a stock over the short-term.  Some fraudulent analysts will buy shares in a company prior to releasing a buy recommendation for a stock.  This sort of illegal activity has sparked a federal investigation of many rating agencies, since they were issuing positive ratings on a number of institutions that were holding large amounts of credit default swaps.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

Tradingsim.com
Day Trading Simulator

Tradingsim.com provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for...

Send this article to a friend.

Enter multiple addresses on separate lines or separate them with commas.