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13. What is Front Running?

 

  • A broker, after receiving a large order from a client, purchases many shares of that stock for herself first (or tells her friends to do so) knowing that this order will cause the price to go up.
  • A broker, after receiving a large order from a client, purchases all of the shares at the same time, causing the price of the stock to fluctuate and creating instability in the price of the stock.
  • A broker uses decimalization, or the fact that stocks are traded in pennies instead of 1/16ths of a dollar, to take advantage of other investors.
  • A broker temporarily invests a client’s entire portfolio in a single investment so that the price goes up, and then sells it quickly with the higher price.

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