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. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
  2. My broker just sold securities out of my account without my permission. Is this legal?

    Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two ... Read Answer >>
  3. There are so many stockbrokers out there. How do I go about choosing the best one ...

    If you decide that you have the knowledge and experience to take on stock investing, or if you feel you would like to give ... Read Answer >>
  4. What does "in street name" mean, and why are securities held this way?

    In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate. ... Read Answer >>
Related Articles
  1. Financial Advisor

    Open Interest

    Learn more about this commonly used term found in a stock's option chain.
  2. Personal Finance

    Why You Should Consider A Career In Supply Chain Management

    Supply chain managers ensure that increasingly global companies can coordinate distant sources of materials, labor, and manufacturing to successfully bring products to market.
  3. Trading

    Broker or Trader: Which Career is Right For You?

    A day in the life of a broker or trader is an exciting and varied one. Find out how to decide between these two financial professions.
  4. Financial Advisor

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  5. Investing

    Discount Broker

    A stockbroker who carries out buy and sell orders at a reduced commission compared to a full-service broker, but provides no investment advice.
  6. Trading

    How Forex Brokers Make Money

    Forex brokers set their prices based on commission, spread, or a combination of both. Traders have to be cautious in the thinly regulated forex market.
  7. Trading

    The Best Low-Cost, Web-Based Trading Brokers

    With this table, investors can differentiate between top low-cost, web-based trading brokers by price, capabilities, and offerings.
  8. Investing

    Why Use a Discount Broker?

    A discount broker is a stockbroker that does not offer clients investment advice, but trades shares for a smaller commission than a full-service broker.
  9. Financial Advisor

    Evaluating Your Stock Broker

    Make sure you're getting the best service by staying informed and involved.
RELATED TERMS
  1. Daisy Chain

    A group of unscrupulous investors who, practicing a kind of fictitious ...
  2. Option Chain

    A form of quoting options prices through a list of all of the ...
  3. Give Up

    A procedure in securities or commodities trading where the executing ...
  4. Each Way

    A slang phrase used when a broker earns commissions from both ...
  5. Supply Chain Attack

    A supply chain attack is a cyberattack that attempts to inflict ...
  6. Supply Chain Management - SCM

    Supply chain management is the streamlining of a business' supply-side ...
Hot Definitions
  1. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  2. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Zero Day Attack

    Zero Day Attack is an attack that exploits a potentially serious software security weakness that the vendor or developer ...
  6. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. The effective tax rate for individuals is the average rate ...
Trading Center