3 ms·

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 tra

by 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.
      - gruez 2y ago
        >Most of the illegal front running is trading ahead of specific trades in response to seeing those orders. Any evidence this is actually happening, rather than something like "this ETF rebalances every quarter, they're unbalanced, and are expected to rebalance in this way", or "this company is probably going to get included in the S&P 500 because it's doing really well"? What makes this sort of "front running" less acceptable than buying because "I like the stock", or trading on technical analysis?
        toast0 2y ago
        Here's three SEC press releases that seem to indicate there's evidence of illegal front running: https://www.sec.gov/newsroom/press-releases/2021-118 https://www.sec.gov/newsroom/press-releases/2021-118 https://www.sec.gov/newsroom/press-releases/2021-186 https://www.sec.gov/newsroom/press-releases/2021-186 https://www.sec.gov/newsroom/press-releases/2022-228 https://www.sec.gov/newsroom/press-releases/2022-228 Trading ahead of index funds when an index change is announced is front running in my book, but it isn't illegal front running; but I don't consider it less acceptable than buying because the graph makes a funny shape.
        gruez 2y ago

by toast0 2y ago

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.
    - gruez 2y ago
      >Most of the illegal front running is trading ahead of specific trades in response to seeing those orders. Any evidence this is actually happening, rather than something like "this ETF rebalances every quarter, they're unbalanced, and are expected to rebalance in this way", or "this company is probably going to get included in the S&P 500 because it's doing really well"? What makes this sort of "front running" less acceptable than buying because "I like the stock", or trading on technical analysis?
      - toast0 2y ago
        Here's three SEC press releases that seem to indicate there's evidence of illegal front running: https://www.sec.gov/newsroom/press-releases/2021-118 https://www.sec.gov/newsroom/press-releases/2021-118 https://www.sec.gov/newsroom/press-releases/2021-186 https://www.sec.gov/newsroom/press-releases/2021-186 https://www.sec.gov/newsroom/press-releases/2022-228 https://www.sec.gov/newsroom/press-releases/2022-228 Trading ahead of index funds when an index change is announced is front running in my book, but it isn't illegal front running; but I don't consider it less acceptable than buying because the graph makes a funny shape.
        gruez 2y ago