Social Trading Platforms Basically Front Running?
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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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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