Legging In

  

Categories: Trading

See: Leg Out.

You put your good leg in...you put your bad leg out. And you do the hokey pokey as you turn yourself about.

Something like that, anyway. It was Adele or maybe Gaga who sang it.

Anyway, "legging in" refers to the process of buying a meaningful position, usually in stocks, as performed by large institutional buyers who have to worry about trading liquidity in the security they want to buy.

Like...Fidelity might decide that MSFT has finally gotten its act together, and wants to own 100 million shares. If they try to buy more than 10 million on any given day, they'll push upward the price of the stock, making the cost of gaining that position more expensive. That would be bad.

So they leg in, buying 5 million shares one day, then nothing the next, then 3 million the next. Then they stop. The brokers front-running them (i.e. buying shares ahead of them, marking up the price and then re-selling to them) might then not be "tipped off" to the notion that Fido wants 100 million shares. They then might leg in another 10 or 15 or 20 million shares on a weak market day when those shares are easier to buy. In the process of this hokey pokey, over a few weeks or so, they'll have "quietly" snarfed up the 100 million shares that they wanted for a full position in the stock, and then pray that it goes up. Or whatever they do to make gains in stocks at Fido. Woof.

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Finance: What is Front Running?3 Views

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Finance allah shmoop what is front running All right you're

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a b s d a big stock diviner your job

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is to invest for the mega gargantuan billions of dollars

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in assets mutual fund that you manage your kindly loving

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trusted and for friendly broker at nah graham nad log

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c and bp group knows that you've been a hankering

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for a big position in mega soft which has traded

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down tto only fourteen times earnings well the bank has

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set up meetings for you with senior management it's given

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you reams of its own research on personal computer sales

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declines and all kinds of dope on how mega soft

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is doing so they know you're interested Then comes along

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and ugly day in the overall market and mega soft

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drops from twenty three bucks a shared a twenty two

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along with everything else that's down big for five percent

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You think now it's my time toe act a different

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kind of acting meaning now it's my time to buy

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twenty five million shares and yes that's a lot of

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shares but you do that all the time in your

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mega fund and twenty five million shares at twenty two

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Bucks is now scootch over five hundred million dollars Since

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your fund is twenty five billion in assets and while

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that's only a two percent position for you So how

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is your broker thinking about this Well she could sell

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you those shares all of them and get a two

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cent a share commission for the pleasure If she sold

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you all twenty five million shares well that would be

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half a million bucks in commission for one trade Yeah

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nice work if you can get it But she has

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her eye on the executive suite of nah Graham nad

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lob c n b p group and really wants the

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private bathroom with the waterfall rumored to be on the

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fifty second floor So she thinks if i whisper to

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my trusted trader tt that megha is buying twenty five

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million shares while tt could go in front of mega

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sze buying i front run him buy up everything at

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twenty two dollars and then deal off the top of

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his deck or sell two mega the shares he bought

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it's a you know a twenty cent a share profit

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like he buys it Twenty two even sells them at

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Twenty two twenty on their way to twenty three and

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higher The mega fund manager would even notice that twenty

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cent difference Probably not Not if the bank does that

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quickly and quietly and maybe brings in its foreign partners

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to do so Well if they did this if they

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front ran the mega mutual fund and bought shares ahead

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of it on their own proprietary account well they'd make

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twenty cents a share buying him in the morning and

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selling in the afternoon That's twenty cents times twenty five

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million shares now that's five million in gains tow her

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firm Not just that measly two Sent to share commission

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five hundred grand She'd keep like twenty percent of the

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total here So um is it worth it Is it

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worth it The five million twenty million dollars Well she

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ponders and ponders and then decides it wasn't because front

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running is patently illegal and her firm forbids it at

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least notionally where they can control the behavior So her

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career's over and she goes to jail Yeah moral don't

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do this Hey at least she has a long string

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to chat with tt on the men's side of the

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prison too So you really don't want to do front 00:03:36.935 --> [endTime] running

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