Frontrunning

Frontrunning is the practice of trading on advance knowledge of a forthcoming order or price move, with the aim of profiting from the anticipated price impact. The term is used across traditional financial markets and decentralized environments, though the specifics differ by regime and technology.

In traditional securities markets, frontrunning typically involves a broker, dealer, or proprietary trader who detects a large client order and trades ahead of it, or who uses information about institutional flows to predict price movement. Because the trader acts before the client’s order is executed, the client’s execution price may worsen. Many jurisdictions treat such behavior as market manipulation, insider dealing, or a breach of fiduciary duty, and it can be illegal or subject to sanctions.

In electronic markets and high-frequency trading, frontrunning can take the form of speed-arbitrage or queue-jumping, where a market participant with faster access to data or execution opportunities places orders ahead of others.

In blockchain and decentralized finance, frontrunning occurs when a participant with faster access to the network or to miners/validators inserts a transaction ahead of a victim’s pending transaction on a decentralized exchange, often by paying higher fees. A common variant is a sandwich attack, in which the attacker places orders both before and after the victim’s trade to capture price movement.

Mitigations include strict order handling rules, burst or batch auctions, increased transparency of order flow, fair sequencing services, and privacy-preserving mechanisms. The legality and use of frontrunning vary by jurisdiction and market structure, and it remains a subject of ongoing policy and technical debate.