Do you know what front-running is?
It is illegal.
A trader has insider information about a big stock purchase.
Before the purchase happens, he goes and buys that stock.
Then the big purchase happens. Prices go up. The trader sells and exits. Quick profit.
Severe punishments depending on the country.
When would it be not-illegal?
When that information is openly and publicly available. Then anyone can try to take advantage of this situation.
But that’s the problem. This trick doesn’t work when it’s public knowledge.
Too many investors try to buy before the transaction takes place. And then, the price shoots up.
The profit margins in such a trade become smaller and smaller — until they practically vanish.
This isn’t as good a trick as it sounds.
Japanese Buying
Except, there was one time, for many years, when it did work. And it was legal.
Many would know about the situation in Japan over the last few decades.
In short: their stock markets rose astronomically, then crashed in 1990. Their economy wasn’t growing.
To support economic growth, the Bank of Japan (their version of the RBI) tried many options for many years.
Keeping interest rates extremely low was one trick Japan was most famous for.
A few others too.
The story of Japan, its stock markets, and its economy is a long and elaborate one.
That’s not what today’s write-up is about, so we won’t go into greater detail. If you’re interested, please read more about it. There is some fantastic content easily available on it online.
Rock-bottom interest rates — well known.
But there’s another less-known trick they tried for about 13-14 years.
When lowering interest rates didn’t work as well, the Bank of Japan decided to do something radically different.
Propping up the stock markets.
Their stock markets had given extremely low returns. The sentiment of investors and those running the companies was affected by it.
So the government thought that by helping the stock markets, they would be able to encourage companies to make more ambitious plans for the future.
They started buying the biggest companies on the Nikkei 225 (the index with the 225 biggest companies). They did so by buying ETFs.
This index was made up of the biggest companies in Japan.
They owned stocks of the biggest Japanese companies via these ETFs.
Traders were trying to cash in on this.
This was all publicly known. And as we discussed earlier, if it is well known, the trick doesn’t really work all that well.
But it did work in this case.
Scale
But why — why exactly does it not work?
Well, let’s take one company.
It’s a medium-sized company. Let’s say you heard that a particular mutual fund was about to buy its shares.
But if this was public knowledge, everyone would start buying and the price would start shooting upwards.
Trick fails.
But what if only you knew about it? Then the trick would work, right?
Why is that?
Because, your investment amount is too small compared to the company’s total market-cap. So your buying is not big enough to change the share price.
(Market-cap or market capitalization is the total value of all shares of a company).
If too many people start buying, that’s a lot of money chasing some stocks. Then the share price gets affected.
So the trick works only when the buying is small compared to the total size of the company’s market-cap.
And Nikkei 225 was made up of some of the biggest companies with incredible amounts of shares being bought and sold every day.
But then, wait.
The market-caps of these companies are so big that even many investors buying them does not cause the share prices to rise.
Then how would this trick work?
For it to work, we need two things.
First, the company should be large enough that many investors’ buying does not cause its price to rocket up.
Second, at the same time, when the big investor buys, the price should move up.
So, first, it must be large enough. Second, it must not be too large.
Those are very, very difficult conditions to find most of the time.
In the Japanese case, we are not even talking about one large company. We are talking about 225 of the largest companies.
That’s just too massive to move.
Too massive, yes. Very, very few can move these prices.
The Japanese government themselves were big enough. They were gigantic.
The Plan
The plan was easy.
The Japanese government (via the Bank of Japan) had planned to buy billions of dollars’ worth of the largest companies’ stocks.
In front of the Nikkei 225 stocks, the traders’ buying combined was too small to do much.
But the government’s scale of buying was large enough.
Easy profit.
And this seemed to work well for a long, long time — 13 to 14 years, in fact.
The amount invested was not fixed. It only increased over time.
It appeared that the Bank of Japan would buy stocks whenever the Nikkei index fell by a certain percentage. It was not a fixed rule. It was decided.
But traders soon figured out a pattern quite accurately.
In 2024, the Bank of Japan announced that they were stopping buying more stocks/ETFs.
They were done with it.
Were they successful?
Opinions are mixed.
But what is sure is this — traders will no longer be able to exploit this easy and legal front-running trick.
Around 2010, when this buying started, the Bank of Japan owned close to 0% Japanese stocks.
By 2025, this number was 7%.
They owned 7% of the biggest companies in Japan by value.
The Challenge
The Bank of Japan decided to sell off these stocks, now that the experiment was over.
Unfortunately, that was not going to be easy at all. They owned too much.
They owned so much that if they started selling, the share prices would fall. Since they practically owned shares in all the biggest companies, the entire stock market would be destabilized. Irresponsible.
The other side of this was that the money belonged to no single investor. It belonged to the public via the Bank of Japan.
If the Bank of Japan sold the shares fast, they might have to lower their gains or suffer losses from the investment.
That would also be irresponsible.
7% might not sound like that much. That may be true if it were just one company. But owning 7% of the entire stock market is something else.
What made it worse was that they owned 7% of all shares of these companies. Not just the free float.
What is that and why does it make matters more serious?
Free Float
When we hear about companies’ shares being traded, not all shares might be traded.
There might be shares that will never come on the share markets.
Example: the promoter and/or family might never sell their shares. Those shares are for maintaining control over the company.
These are called non-free float shares.
These aren’t only owned by the promoters or their family. Shares owned for control and not active trading are all considered non-free float shares.
It could include shares owned by government bodies, parent companies, etc.
The remaining shares are traded on the markets. These shares are called free float shares.
This complicates things more.
Why?
Because if the free float is low, fewer shares are available for trading.
Despite the companies being big, a small number of shares are traded. The smaller the number of shares traded, the bigger the price fluctuations.
Say a small town has only a few rental homes available. And many people show up to rent. Wouldn’t that cause the rent to jump up faster? When compared to a large city with many rental homes?
The opposite effect would happen if too many people left — rents would fall just as fast.
That’s why free float matters. The bigger the free float, the more stable the share price.
Free float vs non-free float shares, the split is not fixed, by the way. It changes.
Not all free-float shares are available on the markets every day.
This is why traders and investors look at daily trading volume or number of shares being traded per day. Yes, this makes it even more complicated, but that’s what it is.
If tomorrow a family that has owned 20% of a company for decades decides to sell shares, the free float increases.
These Japanese companies had pretty sizable non-free float shares.
The Bank of Japan owned 7% of all shares.
But what about free float shares? Much more.
That should highlight just how massive their holding was.
If the Bank of Japan had to sell their shares and not crash the market, they would have to do so extremely slowly. Little by little.
They started selling in January 2026.
A rough arithmetic estimate puts this duration at 112 years.
(No, that’s not a typo).
They will take roughly 112 years to offload these shares.
The aim is to sell 330 billion yen worth of stocks every year (via ETF sales).
(The total is about 37 trillion yen).
The speed of selling may increase or decrease based on market conditions. 112 years is not a fixed schedule.
Big
When you’re big, buying and selling is a problem. That’s what this teaches us.
Most individual investors are not likely to experience this problem with most mainstream stocks.
You know who does face this issue?
Institutional investors — mutual funds, pension funds, sovereign funds, banks, insurance companies, etc.
This is an advantage individual investors have over institutional investors.
Individuals can enter and exit without worrying about changing the price.
The bigger the company (and/or its free float), the easier it is to buy/sell the shares.
Institutional investors tend to stagger their buy/sell orders over days, weeks, and even months sometimes.
The smaller the company (and/or its free float), the more difficult it is for them to buy/sell.
If you look at some extremely small companies’ stocks, you’d be surprised how easily their share price gets moved by placing some relatively big orders.
Even individual investors with a little bit of money might be able to do this in some cases.
The short version of all of this is: compare the amount you are investing or withdrawing against the company’s entire market-cap and its free float.
So, if most individual investors cannot move the price, why are we even writing about it in this digest?
Because when certain news comes in, and many individual investors start panicking or feeling excited. They behave similarly.
Combined, they become a “large investor” as a group.
That’s one way how share prices move every single day.
That, and also, big buy/sell orders by institutional investors, governments, and promoters.
That explains why many investors like to keep track of big-ticket buyer/seller activities.
Whenever a big enough block forms, the price moves.
Quick Takes
+India’s industrial production rose 8% in August from 6.7% in July. The growth was led by electricity & gas supply and manufacturing sectors.
+The government extended the due date for providing income return for AY 26-27 for persons subject to audit to 21 Nov from 31 Oct.
+The government approved Rs 223 crore for Kavach 4.0, an Automatic Train Protection (ATP) system in the Varanasi division and Rs 122 crore separately, for an additional 6 km stretch in Odisha.
+Tonbo Imaging India Ltd, Pioneer Fil-med Ltd, and Functional & Innovative Foods Ltd received SEBI approval for IPO.
+BSE Ltd stock will enter Nifty 50 from tomorrow and Wipro will exit in accordance with the NSE release in August.
+17 out of 19 sub-sectors rose as per Index of Services Production (ISP) data for July 2026. Only repair services and air transport fell.
+SEBI settled non-compliance with minimum public shareholding proceedings against Adani Group Chairman Gautam Adani and 4 other group companies for a settlement amount of Rs 1.48 crore.
+EverBrands India which operates restaurant brands like Subway, Lavazza and Dilmah, filed DRHP for an IPO. The issue will comprise a fresh issue of Rs 600 crore with no offer for sale component.
+India’s fiscal deficit widened to 41.9% of the annual budget estimates between April and August, from 38.1% in the same period last year.
+The government approved Rs 1.86 lakh crore under the Green Energy Corridor Phase-III scheme to build infrastructure for up to 135 GW of renewable energy.
+Jewellery maker Royal Chain filed a DRHP for an IPO that will consist of a fresh issue of Rs 850 crore and an offer for sale of Rs 150 crore.
+India’s gross GST collection rose 14.7% year-on-year to Rs 2.04 lakh crore in September.
+The government cut sugar stockholding period to 15 days from 30 days and fixed the stock holding limit to 1,000 quintals with effect from 15 Oct to 30 Nov 2026, ahead of the festive season to prevent speculative trading.
+Inox Clean Energy filed a DRHP for an IPO that will comprise a fresh issue of Rs 8,000 crore and an offer for sale of Rs 2,000 crore.
+The government reduced windfall taxes on diesel to Rs 16 per litre (vs 20 earlier), and ATF to Rs 10.5 per litre (vs 15 earlier).
+Carlsberg India, TMC Transformer (India) Ltd and 2 other companies received SEBI approval for IPO.
+Moneyview listed at Rs 55 on NSE, a premium of 61.76% above its issue price and closed 57% higher.
+India’s forex reserves fell $18.34 billion to $747.56 billion for the week ended 25 Sep.
+The government extended RoDTEP (an export tax-refund scheme) until 31 Dec from 30 Sep for several categories of exporters, including SEZ and export-oriented units.
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest
Your posts are informative but too lengthy and verbose. It takes awful amount of time to read and comprehend. Kindly make it short and sweet, with illustrations where possible.