Front-Running
Market Microstructure glossary · Market Microstructure Fundamentals
Definition
Trading ahead of a known impending order (e.g., a client's), benefiting from the price impact the larger order will cause. Generally illegal when based on customer information.
Front-Running in plain English
Front-running is jumping in line ahead of a big order you secretly know is coming, so you profit from the price move that order will cause. Because a large buy tends to push the price up, someone who learns a client is about to place one can buy first, then sell into that rise for an easy gain. Imagine a ticket agent who hears a celebrity is about to buy 1,000 concert tickets, quietly snaps up a batch first, then resells them at the higher price the big purchase creates. When it's based on a customer's private order info, it's a betrayal of trust and generally illegal.
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