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.

  1. What is the difference between supply chain management and value chain management ...

    Discover what the principal differences are between utilizing a supply chain management system and a value chain management ... Read Answer >>
  2. What are some advantages and disadvantages of value chain analysis?

    Learn about the five activities that make up a generic value chain. Understand the advantages and disadvantages of value ... Read Answer >>
  3. What is the difference between a value chain and a supply chain?

    Understand the difference between a value chain and a supply chain. Learn why a company would want to maximize the value ... Read Answer >>
  4. How can I use value chain analysis to evaluate investment decisions?

    Understand how an investor can use value chain analysis to evaluate an investment decision. Learn what activities add value ... Read Answer >>
  5. How does a strong value chain management team help a company?

    Understand what makes up a company's value chain and the point of a value chain. Learn how a strong value chain management ... Read Answer >>
Related Articles
  1. Financial Advisor

    Open Interest

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

    Explaining the Supply Chain

    A supply chain is the cumulative network involved in moving raw materials, components and finished products from original suppliers to end users.
  3. Small Business

    The Basics Of Value Chain Analysis

    Value chain analysis establishes an action plan to understand and implement actvities that create values to a firm's clients, resulting in firm profits.
  4. Investing

    Picking Your First Broker

    If you're a rookie investor, your first big investment decision should be an informed one.
  5. Investing

    How To Choose The Right Online Trading Broker

    The online broker market is becoming more competitive, but differences exist in services that can help traders choose the broker that’s right for them.
  6. 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.
  7. Trading

    Is Your Forex Broker A Scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
  8. 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.
  9. 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.
  10. Trading

    Price Shading In The Forex Markets

    This practice puts brokers ahead of their clients, but it doesn't have to be a negative for traders.
  1. Daisy Chain

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

    An indicator that provides information on the monthly sales volumes ...
  3. Option Chain

    A form of quoting options prices through a list of all of the ...
  4. Value Chain

    A high-level model of how businesses receive raw materials as ...
  5. Give Up

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

    A slang phrase used when a broker earns commissions from both ...
Hot Definitions
  1. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  2. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  3. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
  4. Series 7

    A general securities registered representative license administered by the Financial Industry Regulatory Authority (FINRA) ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Expatriation Tax

    An expatriation tax is a tax on someone who renounces their citizenship. In the United States, the expatriation tax provisions ...
Trading Center