front running
The illegal practice of trading a security for one's own account based on advance knowledge of pending client orders that will affect the security's price.
Example
“The broker was convicted of front running — buying stocks just before executing large client orders that would push prices higher.”
Memory Tip
FRONT RUNNING = cutting in line. Trading BEFORE your client's order to profit from their trade.
Why It Matters
Front running matters because it undermines fair markets and erodes trust in financial institutions. If traders can profit from knowing your orders before you execute them, you are essentially being disadvantaged and paying hidden costs that reduce your investment returns over time.
Common Misconception
Many people assume front running only happens in stock markets, but it can occur across all asset classes including bonds, options, and cryptocurrencies. Another misconception is that it is hard to detect, when in reality modern surveillance systems and regulatory bodies actively monitor trading patterns to catch suspicious activity.
In Practice
Suppose you place an order to buy 100,000 shares of a stock at market price through your broker. A broker trader learns of this large pending order and buys 50,000 shares for their own account first, knowing your order will push the price up. Your order then executes at a higher price, and the broker sells their shares for a quick profit, costing you thousands of dollars in excess price impact.
Etymology
FRONT (before, ahead of) RUNNING (executing trades). Trading AHEAD of (FRONT of) known client orders.
Common Misspellings
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Related Terms
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See Also
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