Front running

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Front running

Entering into an equity trade, options or futures contracts with advance knowledge of a block transaction that will influence the price of the underlying security to capitalize on the trade. This practice is expressly forbidden by the SEC. Traders are not allowed to act on nonpublic information to trade ahead of customers lacking that knowledge.

Front Running

The act of entering a trade, either with a long or short position, knowing that other investors are about to take a position that will positively influence one's own. For example, one may buy Security A knowing full well that other investors are also about to buy Security A in large blocks, causing its price to increase. This will allow the investor to sell Security A at a much higher price. Front running is forbidden by the SEC as a form of insider trading. It is also known as stepping in front or pennying.

front running

Entering into a trade while taking advantage of advance knowledge of pending orders from other investors. For example, an exchange specialist may step in front and buy stock for slightly more than the price offered by other investors. The 2001 change to pricing stocks in pennies rather than fractions facilitated front running by reducing the extra amount that must be offered to step in front of other orders. Also called pennying, stepping in front.
Case Study The switch to pricing stocks in decimals rather than fractions brought narrower bid-ask spreads at the same time it raised new concerns about front running by specialists and market makers. With penny intervals in decimal pricing, market makers found it less expensive to step ahead of a large order. Suppose an institutional investor has placed a limit order to buy 50,000 shares of XYZ stock at $35.50. Knowledge of the limit order allows the exchange specialist or Nasdaq market maker to step ahead of the institutional order and offer $35.51 with little risk of incurring a big loss. In the event the stock price doesn't rise, the market maker can sell the stock for $35.50 to the institution that placed the limit order. On the other hand, a rise in the stock price produces a nice profit for the front-running market maker that offered minimal price improvement. Front running was considerably more expensive with fractional pricing, which resulted in price intervals of 1/16 (6.25¢) to 1/8 (12.5¢). Thus, decimalization benefited investors who profited from reduced spreads at the same time it increased the possibility that limit orders would not be executed.

Front running.

If you trade stock or other investments because you know that an upcoming transaction by a third party is likely to affect the market price of the investment, you're front running.

Because front running, sometimes known as forward trading, relies on information that isn't available to the general public, it's considered unethical in certain circumstances.

One example is a broker-dealer who trades at a better price for a personal account than for a client's account.

References in periodicals archive ?
Not surprisingly it was also a new Irish record - as was her time of 47min 36min at 15k - as her flat-out front-running not only ran the strength out of her rivals, but obliterated the 67min 50sec Catherina McKiernan ran on the superfast Lisbon course in 1998.
A winner of major handicaps on the level and good enough to be runner-up in a Champion Hurdle by employing front-running tactics, there have been rumblings the way to upset the nine-year-old is to challenge him up front.
Murtagh's exhibition of front-running on Dancing Rain undoubtedly made it one-nil to the Irishman over his compatriot, who could not find the three-quarters of a length he needed.
Just as the front-running Barizan was seeing off the challenge of Sanctuaire on the run-in, along came 40-1 chance Orsippus with a wet sail under Davy Condon to collar them both and go three-and-a-quarter lengths clear.
KORNATI KID denied the front-running Will Be Done in a close call for the Towton Novices' Chase at Wetherby.
THE LISTENER and Daryl Jacob were mugged last year by Beef Or Salmon but made no mistake this time in the Hennessy with a brilliant front-running display at Leopardstown yesterday.
The 7-1 shot came from well off the pace under Christophe Lemaire to collar the front-running Boogie Street inside the final furlong and land the Group Two contest in good style by a length and three-quarters.
Grey Abbey put up an impressive display of front-running under Graham Lee to make light of a step up in class in the bet365 Charlie Hall Chase at Wetherby on Saturday.
The 28-year- old jockey gave a brilliant front-running performance.
KATHY Butler produced a brilliant front-running display yesterday to land her first domestic title in the eight-kilometre trial race at the Reebok UK Inter-Counties Cross Country Championships in Nottingham.
The colt strived hard in the hands of Michael Kinane but was unable to peg back the front-running Light The Rocket, who ran on strongly to win by half a length.
The May import and export surges reversed the big drops in March to leave in place what has been a surprisingly resilient export path over the last year despite today's modest disappointment, alongside a 2019 weakening in imports as analysts unwind the 2018 tariff "front-running." Firmness in exports since 2017 has defied headwinds from retaliatory tariffs and a higher dollar.