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How do you front run a mutual fund? The price is the price.

by 2OEH8eoCRo0 2y ago

manojlds 2y ago
You mean an index fund?
- 2OEH8eoCRo0 2y ago
  An index fund is a type of mutual fund
  - manojlds 2y ago
    Yeah but you can front run a (active) mutual fund
  - lotsofpulp 2y ago
    Wouldn’t index ETFs be index funds that are not mutual funds?
    - 2OEH8eoCRo0 2y ago
      Yes and they trade during market hours the same as stocks so I understand front running those trades.
toast0 2y ago
Predict or react to index changes faster than the funds that are compelled to follow the index. But you can't front run shares of mutual funds; they always trade at close of business at NAV. You could potentially front run ETFs, but if you're worried about that, you can use limit orders and get the price you want or not transact. As long as you use a competent broker that offers limit orders.
- kasey_junk 2y ago
  That’s not front running! Front running requires a fiduciary obligation to who you are trading on behalf of.
  - toast0 2y ago
    Investopedia disagrees: > A form of front-running in index funds is common and isn't illegal. > Index funds track a financial index by mirroring the index's portfolio. The composition of the index changes periodically to balance it accurately as the stocks that make it up change dramatically in price or as stocks are added or removed from the index. That forces the fund's managers to buy or sell some components of the index. https://www.investopedia.com/terms/f/frontrunning.asp https://www.investopedia.com/terms/f/frontrunning.asp
    - kasey_junk 2y ago
      Then investopedia is wrong. Front running is a very specific thing, a) it requires private information, b) requires trading on behalf of someone and c) requires a fiduciary duty to the person
    - gruez 2y ago
      If we use that expansive definition of "front running", is it "front running" if I buy stocks trying to squeeze short sellers? What about if I thought people would buy/sell telsa stocks because of musk's role in the culture wars, and tried to get ahead of that? Is "front running" just buying low and selling high?
      - toast0 2y ago
        Well, let's not call a short squeeze by another name. Otherwise, I wouldn't call those things front running, as there's no indication of imminent activity. If a material increase in lending rates on a heavily shorted stock was announced, and you bought because you were pretty sure the shorts would be buying to close, that could be front running, yeah. I dunno about market moves based on Elon's role in the culture wars, but maybe if he did something in particular. In general, buy on the rumor, sell on the news could qualify as front running under this definition, but I think I'd want to narrow it a bit to working to trade ahead of perceived imminent and definite trades. Most of the illegal front running is trading ahead of specific trades in response to seeing those orders.
short_sells_poo 2y ago
If you know the index rules, it's fairly simple to calculate the turnover it is going to generate when it rebalances and subsequently the impact the rebalance is going to have on prices. This is a fairly well known behavior and a lot of players have been doing this for a long time. Basically every index of any significance is already being monitored and rebalancing effects are "front-run" this way. I put the word in quotes, because this is a perfectly legitimate way of front running. The major indices are all public, and anyone can take a crack at this. In other words, if I announce to the world a month in advance that on a specific day and a very specific time of the day (at the closing auction) I'm going to buy X amount of specific stocks and sell Y amount in other stocks, I can't blame people for using that information against me.
- loeg 2y ago
  This is not what "front running" means.
  - short_sells_poo 2y ago
    Yeah duh. I was explaining to the parent.
    - loeg 2y ago
      No, you're still saying it's front running. > Basically every index of any significance is already being monitored and rebalancing effects are "front-run" this way. > I put the word in quotes, because this is a perfectly legitimate way of front running. No; it is not "front running."
fsckboy 2y ago
How do you front run a mutual fund? as a "consumer" of the mutual fund, you can't. but the mutual fund itself makes large trades: somebody downstream executing those trades or having access to that data could front run.

How do you front run a mutual fund? The price is the price.

manojlds 2y ago

You mean an index fund?

2OEH8eoCRo0 2y ago
An index fund is a type of mutual fund
- manojlds 2y ago
  Yeah but you can front run a (active) mutual fund
- lotsofpulp 2y ago
  Wouldn’t index ETFs be index funds that are not mutual funds?
  - 2OEH8eoCRo0 2y ago
    Yes and they trade during market hours the same as stocks so I understand front running those trades.

toast0 2y ago

Predict or react to index changes faster than the funds that are compelled to follow the index. But you can't front run shares of mutual funds; they always trade at close of business at NAV. You could potentially front run ETFs, but if you're worried about that, you can use limit orders and get the price you want or not transact. As long as you use a competent broker that offers limit orders.

kasey_junk 2y ago
That’s not front running! Front running requires a fiduciary obligation to who you are trading on behalf of.
- toast0 2y ago
  Investopedia disagrees: > A form of front-running in index funds is common and isn't illegal. > Index funds track a financial index by mirroring the index's portfolio. The composition of the index changes periodically to balance it accurately as the stocks that make it up change dramatically in price or as stocks are added or removed from the index. That forces the fund's managers to buy or sell some components of the index. https://www.investopedia.com/terms/f/frontrunning.asp https://www.investopedia.com/terms/f/frontrunning.asp
  - kasey_junk 2y ago
    Then investopedia is wrong. Front running is a very specific thing, a) it requires private information, b) requires trading on behalf of someone and c) requires a fiduciary duty to the person
  - gruez 2y ago
    If we use that expansive definition of "front running", is it "front running" if I buy stocks trying to squeeze short sellers? What about if I thought people would buy/sell telsa stocks because of musk's role in the culture wars, and tried to get ahead of that? Is "front running" just buying low and selling high?
    - toast0 2y ago
      Well, let's not call a short squeeze by another name. Otherwise, I wouldn't call those things front running, as there's no indication of imminent activity. If a material increase in lending rates on a heavily shorted stock was announced, and you bought because you were pretty sure the shorts would be buying to close, that could be front running, yeah. I dunno about market moves based on Elon's role in the culture wars, but maybe if he did something in particular. In general, buy on the rumor, sell on the news could qualify as front running under this definition, but I think I'd want to narrow it a bit to working to trade ahead of perceived imminent and definite trades. Most of the illegal front running is trading ahead of specific trades in response to seeing those orders.

short_sells_poo 2y ago

If you know the index rules, it's fairly simple to calculate the turnover it is going to generate when it rebalances and subsequently the impact the rebalance is going to have on prices. This is a fairly well known behavior and a lot of players have been doing this for a long time. Basically every index of any significance is already being monitored and rebalancing effects are "front-run" this way. I put the word in quotes, because this is a perfectly legitimate way of front running. The major indices are all public, and anyone can take a crack at this. In other words, if I announce to the world a month in advance that on a specific day and a very specific time of the day (at the closing auction) I'm going to buy X amount of specific stocks and sell Y amount in other stocks, I can't blame people for using that information against me.

loeg 2y ago
This is not what "front running" means.
- short_sells_poo 2y ago
  Yeah duh. I was explaining to the parent.
  - loeg 2y ago
    No, you're still saying it's front running. > Basically every index of any significance is already being monitored and rebalancing effects are "front-run" this way. > I put the word in quotes, because this is a perfectly legitimate way of front running. No; it is not "front running."

fsckboy 2y ago

How do you front run a mutual fund? as a "consumer" of the mutual fund, you can't. but the mutual fund itself makes large trades: somebody downstream executing those trades or having access to that data could front run.