[fixxer]

Suppose you want to buy XYZ for $1.00. You place your bid and are the highest price against a $1.03 offer.

Evil broker places a $1.01 bid and gets a fill.

He immediately offers $1.02.

Case 1: The market runs up, he makes his tick on essentially zero commissions. On some markets, you earn commissions for providing liquidity.

Case 2: The market falls off, he smacks your bid and only loses a penny.

This is edge.

EDIT: When I say "the market", he could base his actions off an index. As for "free roll", sure... but there is still an impact on liquidity and you're in a situation where you are more likely to get a fill whenever the market is going against you.

[kasey_junk]

Is that legal trading anywhere? That seems like it would fall into front running definitions in all the jurisdictions I know of.

[fixxer]

Legal? No. Does it happen: yes.

[kasey_junk]

OK, but to my other reply. If they are going to blatantly front run, why would they even bother with the markets. Just spoof market behavior to you and take your money. Much easier.

If this behavior is impacting your execution why are you still using "Evil Broker"?

[fixxer]

You mean, provide a false market?

They do that in FX (you're trading their market; it is up to you to know what is going on beyond their walls).

As for spoofing other markets, you can get away with front running.

[kasey_junk]

I'll grant trading FX is for crazy people.

As someone who's experience is way more on the commodities futures side of the house, I'm shocked that blatant front running is an expected cost of business in equities trading. Even in the highly monopolized CME world front running is considered beyond the pale.

I will say (in my experience in the commodities markets), 9 times out of 10 folks who claim that they are being front run are actually just unaware of how sophisticated their competition is when it comes to micro-book structure optimization.

[fixxer]

FX is a great market, but not for the reasons people typically think. The problem lies in brokers for the mass market (the little guy). If you're at a billion dollar hedge fund, you have access to an entirely different class of brokers (and those markets are full of intrigue...)

I second your claim ("9 times out of 10") for CME. Human nature is to assign a complex answer ("they're reading the tape") to something very simple ("my model is shit").

That said, front running happens on CME, too. Again, it is the same construction: consumer sending orders through a nefarious broker.

[fixxer]

EDIT: Adding this here since I can't reply to you kasey.

Why trade with Evil Broker? Don't. I suppose you can argue the difference between trading and investing.

Now, if you want to trade, well, just know they're going to fuck you and lubricate appropriately.