Front Running

Front running, also called tailgating, is the practice of entering into an equity, option, futures, derivative or security-based swap trade to capitalize on advance, nonpublic knowledge of a large pending transaction that will move the price of the underlying security; it is the use of knowledge of an impending trade to make a personal or proprietary securities transaction ahead of that trade, and it is treated as a form of market manipulation in many jurisdictions. Typical cases involve a broker or brokerage firm trading through an undisclosed account belonging to a relative or associate, though institutional and individual investors can also violate front-running rules when they hold inside information, and an employee with access to a firm's order management system may leak details of upcoming orders to a third party who trades ahead of them. A front-running firm profits either by buying for its own account before filling a customer's buy order that will drive the price up, or by selling for its own account before filling a customer's sell order that will drive the price down; the practice is prohibited because the profit comes from nonpublic information at the expense of the customer, the block trade or the public market, and in large schemes the front-running order can approach or exceed the size of the order it exploits.