SIE (Securities Industry Essentials) Practice Exam

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Placing a personal order before executing a client's large purchase order of stock is known as:

Market manipulation
Insider trading
Front-running
Arbitrage

The correct answer is: Front-running

Front-running is when you place a personal order before a large client order in order to benefit from the price increase or decrease that is anticipated to occur. Market manipulation and insider trading are both illegal activities that involve manipulating the stock market for personal gain. Market manipulation involves artificially inflating or deflating stock prices, while insider trading involves using confidential information to make stock trades. Arbitrage is the practice of buying and selling the same or equivalent securities in different markets to take advantage of price discrepancies. None of the other options accurately describe the situation of placing a personal order before a client's large purchase order.