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Daisy chaining is an illegal investment strategy that creates a false impression of security movement to attract investors. It involves creating a series of transactions that make the security appear more active than it really is, but can lead to investors losing money based on false information. The practice is now illegal in many countries due to its reliance on false impressions and lack of genuine activity.
When investing, daisy chaining is a strategy that involves creating a false impression of the movement of a certain security. The daisy chain process requires the creation of a series of transactions that make security appear more active than it really is. This appearance of robust movement makes the security more attractive to investors and, in turn, can spark genuine interest that creates real movement.
While the practice of daisy chaining was once very common, that is no longer the case. Many nations have enacted laws that define this strategy as illegal. There are two main reasons why government regulations prohibit the use of daisy chaining. First, the strategy requires the development of a series of transactions that are not genuine. Because daisy chaining relies on creating a false impression, the method can have some degree of impact on natural activity at similar values.
Second, the goal of the daisy chain is not always the result. While the strategy is to create genuine movement by creating a perception of activity that is already taking place, the exact opposite can be true. When the false momentum created by daisy chaining attracts some investors, they may quickly find that their investment rapidly falls in value once the false trades are discontinued. The bottom line is that investors stand to lose a great deal of money based on false information that was intentionally made available to the trading community.
The creation of this type of illegal brokerage scheme requires the participation of brokers and investors. An investor who wants to stimulate activity in a given security to increase the price per unit and then sell at a profit can work closely with a broker to create the illusion of an increase in the value of the security. When multiple investors and brokers are involved in the project, it is known as a daisy chain.
While the name of the strategy may seem simply colorful, there are some similarities between an actual necklace or chain made of daisies and the chaining of a certain security. In both cases, the daisy chain is quite attractive to look at. Over a period of time, both chains will seem to do very well and generate some degree of interest. Ultimately, both daisy chains begin to weaken and eventually fall apart, leaving little to nothing of value.
Smart Asset.
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