What Is Front-Running?
Front-running means executing a trade with prior knowledge of an upcoming large order, profiting from the market impact when that order hits. In traditional finance, this is illegal when done by brokers using customer order information. In crypto, on-chain front-running by MEV bots is legal but increasingly contested.
Examples: a broker who sees a customer about to buy 100,000 shares places their own buy order first, captures the upward price move, then fills the customer at a slightly higher price. In crypto, a bot detects a pending DEX swap in the mempool and inserts its own trade first, profiting from the price impact of the original.
Defenses in crypto: use DEXs with private mempools (like CowSwap), set tighter slippage tolerances, use limit orders rather than market orders. In traditional markets, front-running by brokers is rare today due to regulation and audit trails, but exists in subtler forms (PFOF, order anticipation) that aren't legally classified as front-running.
Related terms
- Market Maker — Firm that quotes both buy and sell prices, providing liquidity for a profit on the spread.
- Order Book — Real-time list of all open buy and sell orders for an asset, by price.
- Iceberg Order — Large order split into smaller visible chunks to hide true size.
- DEX (Decentralized Exchange) — Cryptocurrency exchange that runs on smart contracts without a central operator.