What is Front Running?
Front Running is considered an unethical or even illegal practice in the finance and trading fields. It refers to traders or brokers using non-public information about future trades to execute trades ahead of those transactions in order to profit from them. This behavior often involves market price manipulation, resulting in harm to the original traders' interests.
Types of Front Running
Traditional Front Running: Brokers execute trades based on clients' future transactions.
Piggybacking: Traders mimic clients' trades, knowing it will affect the market.
Predatory Trading: Traders use high-frequency trading strategies to exploit market loopholes.
Effects of Front Running
Information Asymmetry: Traders can access information that the public cannot.
Market Impact: Front running can affect market prices, negatively impacting original clients.
Legal and Ethical Considerations: Front running is often considered illegal and unethical because it violates the duty of fair trading.
Front Running in Cryptocurrency
In cryptocurrency trading, front runners exploit technological advantages, such as manipulating gas fees or timestamps, to gain early access to trading information and profit. This behavior is particularly common in decentralized exchanges, as transaction information in the blockchain mempool is transparent.