Many ways. One example: a brokerage house could fill buy orders with their own shares or shares from the open market based on their knowledge of the next day’s trades.
If there were a large number of buy orders for company X, the brokerage could infer that there would be a price increase and fill sell orders for company X from the open market, holding their own shares. If there were an impending decrease, the company could fill buy orders with their own shares.
Presumably, they are filling these orders (buying or selling) at or after Monday’s open? If so, how exactly are they profiting (from their weekend knowledge that prices were going to open lower on Monday)?
Well, since they know what’s going to happen, they can execute their sell orders after the cued trades and before their customers’ automatic trade triggers execute if they wish. No trades execute until the opening bell, and they have a picture of what will happen.
Sorry, I think that you don’t know what you’re talking about. Your each additional response makes even less sense then the previous one.
the sky is falling! the sky is falling!
So, @10:57, it looks like gold went up about $30 from Friday close $1663-$1694.6 and silver went up from $38.?? to $40.11, That ZH article was kind of funny.
LoL. I suppose that’ll teach me to give off the cuff answers. Ya got me, I’m a mechanical engineer, not a wall street insider. Still, I’m confident that frontrunning happens. You’ve got to figure that having information about limit orders, order triggers, etc. for a large number of people might give the brokerage house a bit of an advantage when deciding to hold, buy or sell their own shares. Here is an article which discusses front running via flash-trading:
I’m sure that there are plenty of other methods of front-running beyond what are mentioned in the article (as there is a lot of money on the line, and I think that people can be quite creative). I don’t imagine that it much affects most individual investors, but I’m sure that that it makes brokerages wealthy.
Chris, you have no basis for such confidence. The link you provided (and the links in it) talk about high-freq trading which has nothing whatsoever to do with front-running (or with the hypothetical weekend scenario we discussed) and is mostly done by outfits other than brokerage houses. You’re free to hire programmers, buy your own servers, and rent a co-location server space near the order matching engine yourself and see for yourself how easy it is to make money that way. Like any other business, market-making (HF trading) can be profitable but that’s far from guaranteed.