|
|
|
|
|
|
by nkurz
550 days ago
|
|
|
Nice write up! Can you flesh out your example a little bit with more specifics about how the stock market version works? In particular, are the front-runners actually taking a risk by buying before they have a committed order? Or are they committing to sell before they buy from the cheaper source on the assumption it will still be available? And is selling order flow something different, or the same thing here? |
|
|
- Order Flow Sales: This involves brokers selling information about their customers’ orders to interested parties.
- Potential for Front-Running: While not inherently front-running, selling order flow can enable it if the buyers use this information to trade ahead of customer orders.
- Payment for Order Flow: This practice allows some brokers to offer commission-free trades, as they make money by routing orders to specific market makers.
Front-runners do take on some risk, but it’s typically minimal:
- Speed: Modern front-running often occurs using high-frequency trading algorithms, minimizing the time between the front-runner’s trade and the large order execution.
- Committed Orders: Front-runners act on knowledge of committed orders, not mere possibilities. They have an informational advantage.