What Is Front Running?

Front running is a type of market manipulation that occurs when an individual or entity takes advantage of non-public information to buy or sell securities before the public has access to this same information. This practice can be used by traders, brokers, and other financial professionals who have access to inside knowledge about upcoming trades. By taking advantage of this privileged information, they are able to make profits at the expense of their clients and other investors in the market.

The most common form of front running involves a trader buying shares for his own account just prior to executing large orders on behalf of customers. The trader then sells these shares after executing the customer order at a higher price than what he paid for them, thus profiting from the difference between his purchase price and sale price. Front running also includes activities such as entering into transactions ahead of pending news announcements or placing orders based on anticipated client activity in order to benefit from any resulting increase in stock prices. In some cases, front running may even involve illegal insider trading if confidential information is used without authorization.

See also  Backorder

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