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I've been thinking that these social trading platforms that have been popping up everywhere are an absolutely terrible idea for many reasons. One thing I've been thinking is that it might be effectively front-running when you have a trader that is being followed by a large number of people.

I assume their trade is executed first followed by then their followers. Granted I imagine the sums of money we are talking about aren't very big so perhaps not enough to impact the stock price in question but surely if these platforms grow in size this is effectively what will happen?

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    It's worth noting that investment houses have been publishing sometimes selling their trade rational long before social platforms. Part of the rational is that having enough people follow your trade helps the trade itself. As long as the firm is not lying about their trade ideas this is legal and not a pump and dump. – rhaskett Feb 19 '16 at 21:08
  • Yeah of course there's nothing illegal about it, I actually think the social trading platforms are pretty much a clever way of getting general people with little to no investing experience trading and giving them commission. – Simon Nicholls Feb 21 '16 at 18:21
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I don't think you can really classify it as front running. Technically, the only information, that the alleged front runner in this case has over the followers is the knowledge of the trade itself.

Knowledge of the trade may indeed be share price sensitive information (for some high volume traders or those respected and with many followers) but it's not really like they can't know about it before everyone else; parity isn't possible in this case.

If an company/organisation (i.e. the social trading platform say) responsible for disseminating the details/log of a trader to a following (or individuals working for said company/organisation), were to act on the trading data before dissemination then THEY would be guilty of front running.

The alleged front runner may profit from the following of course, but that's only really occurring due to the publication of information that is share price sensitive, and such information generally has to be published by law (if it is by law so classified) so it's difficult to find too much fault. There has to be a certain amount of consideration on the part of any trader as to who is more the fool, the fool or the fool that follows them?

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  • Sorry yeah I didn't actually mean this is literally front running, bad question, I mean surely the effects are somewhat similar? – Simon Nicholls Feb 19 '16 at 18:11
  • Hmm, well for the sake of the community, now there's a question and answer, it's probably best to leave it as is (as you can always ask another question)... But I will answer your comment, or at least give my opinion on the matter... – Michael Feb 19 '16 at 18:37
  • Unless a stock is low cap low liquidity a front runner won't necessarily trade with enough volume to actually move the market (even if there are a few of them). Similarly a social trading platform 'leader' may not move the market. The 'news' (in both cases) might move the market though (or make it more easily movable). Once 'news' is published it is POSSIBLE that MANY traders might pile in, and this could also move the market. So, I'd say the effect of front running MAY be zero, but if you consider the 'leader' trading publication to be news, then that could affect the market like any news. – Michael Feb 19 '16 at 18:40
  • When I say the effect of front running MAY be zero, I should I guess point out that it's still a nasty unethical thing to do, and SOMEONE has technically been screwed - the profit the front runner makes was after all due to a trade at a certain price, that price being what it was because of information not in the possession of whoever was on the other end of that transaction (someone has to sell to a buyer or buy a sellers stock). – Michael Feb 19 '16 at 18:46
  • Thanks, I guess the effect of these traders is so low that it wouldn't make a difference like you say unless it's an illiquid stock, I'm a little naive with the social trading platforms but I assume most of its FX anyway. The whole thing just seems a little fishy to me anyway, I guess it's an easy way of making people think they can earn money by doing absolutely nothing. – Simon Nicholls Feb 21 '16 at 18:19

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