Freeriding

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DEFINITION of 'Freeriding'

1. An illegal practice in which an underwriting syndicate member withholds part of a new securities issue and later sells it at a higher price.

2. The illegal activity of buying a stock and selling it before paying for the purchase.

INVESTOPEDIA EXPLAINS 'Freeriding'

Due to the unfair advantage both of these practices give to those able to exploit freeriding opportunities, freeriding is illegal and prohibited by the Securities & Exchange Commission and the National Association of Securities Dealers.

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