What is a "daisy chain"?

By Chizoba Morah AAA
A:

A daisy chain is a term used to describe a group of investors who engage in activities that inflate or deflate the price of a stock for the purpose of selling it for profit or buying it cheaply. Daisy chaining involves creating transactions to make a particular stock appear more active than it actually is. One way people engage in daisy chaining is by buying securities at low prices, passing the securities through other brokers at prearranged higher prices and buying back the securities at higher prices at the end of the day.

For example, in a classic daisy chain, Broker A buys a stock at $40 and sells the stock for $45 to Broker B, a daisy chain member. Broker B then sells the stock for $50 to another broker on the chain. At the end of the day, Broker A buys the stock back at $50. Thus, for someone outside of the chain, the stock price looks like a good investment because it climbed from $40 to $50 in a single day.

Investors who come into the market buy the stock at $50 and the brokers who are a part of the daisy chain sell it for $50. While the daisy chain brokers may profit from these falsely boosted transactions, manufactured transactions of this kind hamper the natural flow of activity for securities and can be dangerous for investors.

For more on this topic, read Investment Scams.

This question was answered by Chizoba Morah.

RELATED FAQS

  1. How do technical analysts interpret the Average Directional Index (ADI)?

    Learn what the average directional index is and why technical analysts look towards ADX indicators to measure the strength ...
  2. What are the differences between dilutive securities and antidilutive securities?

    Learn how investors and accountants apply the terms "dilutive" and "antidilutive" to securities or the exercise of security ...
  3. Is the Dow Jones a public company?

    Find out how the Dow Jones Industrial Average tracks the health of the U.S. economy. This fluctuating number indicates the ...
  4. Is the Dow Jones a stock exchange?

    Learn about the Dow Jones Industrial Average and its impact. This historically significant index provides a daily snapshot ...
RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Acquisition

    A corporate action in which a company buys most, if not all, ...
  3. International Finance Corporation

    The International Finance Corporation is an organization dedicated ...
  4. International Finance

    Definition of international finance
  5. Bidder

    The party offering to buy an asset from a seller at a specific ...
  6. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...

You May Also Like

Related Articles
  1. Stock Analysis

    Buyinb Facebook Stock, A Beginner's ...

  2. Investing News

    Alibaba's Top Competitors

  3. Investing Basics

    Analysis of Companies with high goodwill

  4. Investing Basics

    What Does The Dow Jones Industrial Average ...

  5. The Nikkei index is synonymous with Japan's economy, the third-largest in the world. Here's the easiest way to take a stake.
    Mutual Funds & ETFs

    How To Invest In The Nikkei 225

Trading Center