The Predators in the Pipes

In Chapter 11, Larry Harris introduces us to Order Anticipators. These are parasitic speculators. They don’t care about what a stock is worth, and they don’t provide liquidity. They just want to know what you are about to do so they can do it first.

1. The Front-Runners (The Sneaks)

Front-running is exactly what it sounds like: running in front of a big order to steal the best price.

• The Illegal Kind: A broker sees your $10 million buy order and buys some for himself first. He profits when your order pushes the price up.
• The “Legal” Kind: Observant floor traders who notice a specific broker always buys in massive chunks. They guess he has more to buy and jump in before him.

2. Quote Matchers (The Penny Jumpers)

This is a common headache for anyone using limit orders.

• The Move: You put in a buy order for 10,000 shares at $10.00. A quote matcher sees your order and puts in an order for $10.01.
• The “Free Put”: If the price goes up, they make a profit. If the price drops, they can just sell their shares to you at $10.00. Your large order acts as a safety net for their risk. In the US, this is often called “penny jumping.”

3. Sentiment-Oriented Technical Traders (The Mind Readers)

These traders don’t look at charts to find “value”; they look at them to predict what uninformed traders will do.

• Example: They know people get their year-end bonuses in January and dump them into the market (The January Effect). They buy in late December to profit from that predictable wave of “dumb money.”

4. Squeezers (The Corner-Makers)

A “squeeze” happens when someone corners the market.

• The Short Squeeze: If a lot of people are short a stock (betting it will go down), a squeezer will buy up all the available shares and then demand their lent shares back. The short sellers are forced to buy at any price just to close their positions. It’s brutal, and often highly illegal.

5. Gunning the Market (Stop-Loss Hunting)

Ever wonder why a stock drops exactly to your stop-loss, kicks you out of the trade, and then immediately bounces back?

• The Strategy: Manipulators push the price just enough to trigger a cluster of stop-loss orders. Those stops turn into market orders, which pushes the price down further. The manipulator then buys at the bottom from the panic-sellers and waits for the price to recover.

How to Protect Yourself

If you’re a big trader, you have to be paranoid:

• Hide Your Size: Use “iceberg” orders or dark pools.
• Split Your Orders: Don’t dump it all at once.
• Watch the Ticks: In markets with large “ticks” (minimum price changes), it’s harder for people to penny-jump you because it costs them too much to get in front.

Next time, we’ll look at the Bluffers—the people who lie to the market to get what they want.

Next Post: Bluffers and Market Manipulation