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

Quote Stuffing

What it is:

Quote stuffing occurs when traders place a lot of buy or sell orders on a security and then cancel them immediately afterward, thereby manipulating the market price of the security. Manipulating the price of shares in order to benefit from the distortions in price is illegal.

How it works (Example):

Let's say John Doe is a trader who owns 1,000 shares of Company XYZ in his personal account. He wants to make the price go up so he can sell the shares and make some money. To do this, he places 500 different buy orders for the shares. Other traders' computer systems notice the orders, figure demand for the stock is going up, and place orders for their own clients, thereby snowballing the effect and bidding up the price of the stock.

This all happens in a matter of seconds, during which John cancels his 500 buy orders and then sells his 1,000 shares of Company XYZ stock for a tidy profit. He has just manipulated the stock by quote stuffing.

Why it Matters:

Quote stuffing relies on traders who want to manipulate the market; it also requires a computerized trading system. The large number of orders involved in quote stuffing can often freeze up trading systems and confuse computerized trading programs.

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...