Front running

(redirected from front-running)
Also found in: Dictionary, Thesaurus, Idioms.

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 ?
Mullins plans dropping Arvika Ligeonniere (inset) back in trip following his spectacular front-running performance in the Drinmore.
Four years the junior of Carruthers, Coneygree made all at Cheltenham last month to win the Neptune Investment Management Novices' Hurdle and returned to the track on Saturday to turn in a similar dominant front-running performance to take the Albert Bartlett Novices' Hurdle.
FRONT-RUNNING tactics worked again for Ismeno in Ascot's William Hill Handicap Hurdle.
O'Regan was on board the heavily backed Jameel in the opener and appeared to be extremely confident of reeling in the front-running Ahyaknowyerself throughout the final circuit.
When it comes to front-running horses at Fairplex Park, you can't often beat them, so you have to bet on them.
ROBERT WINSTON showed just why he is once again a leading contender for the jockeys' title with a front-running double on Silvertown and Royal Dignitary at Musselburgh yesterday.
Jenny Pitman's giant Tennessee Twist, a half-brother to Royal Athlete, notched his first fencing win when getting the better of front-running Indian Tracker for the Tony Preston Aspiring Champions Novices' Chase.
With John McKee riding for trainer Bob Holthus, the son of Langfuhr comes off a front-running victory in the Southwest Stakes, his fifth consecutive win on dirt.
Gunner Welburn, who jumped badly atWarwick last time, will have had his confidence restored after this fluent front-running success at odds of 6-5.