Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Daisy Chain

What it is:

In finance, a daisy chain is an investment scam whereby a group of fraudulent investors inflate the price of a security and then sell it at a profit.

How it works (Example):

In a daisy chain scenario, an investor or group of investors holding a long position in a low-price, small-cap stock unfoundedly publicize the stock as a promising opportunity. Susceptible, credulous investors subsequently purchase shares, which, collectively, leads to a rise in the stock's price because of heightened demand.

Once the original perpetrators have decided that the price of the stock has peaked, they sell off the entirety of their positions for a profit. Subsequently, the false advertising campaign ends and the stock price returns to its original level.

Why it Matters:

Daisy chain scams are an illegal practice punishable by heavy fines by the Securities and Exchange Commission (SEC). With the advent of easily accessible and effective advertising via the Internet, the scams have become more common in recent years. Though investment advice such as stock tips can be convenient, investors are strongly advised to perform their own research on recommended stocks in order to avoid get-rich-quick scams.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...