Front Running in Crypto and Finance

Front running is when someone uses advance knowledge of another trader's order to get ahead and profit from the resulting price move. It matters because it undermines fair markets, increases costs for regular traders, and is a growing concern as decentralized trading becomes more common.

What front running means and why it matters for traders

Front running describes placing trades based on non-public or early-access information about an upcoming transaction. In traditional finance it usually involves brokers or intermediaries acting on client orders. In crypto, the transparent nature of blockchains and visible pending transactions create new opportunities for automated bots and validators to exploit similar information.

How front running typically works in traditional markets

The classic scenario has three steps: someone with advance access to a large order acts first, they place their own trade to capitalize on the expected price move, and they close that position for a profit once the original order executes. This behavior breaches trust and, where regulated, is illegal.

Access to privileged information

A trader or intermediary learns about a sizeable pending order, for example through client instructions, trading desks, or internal systems.

Placing a preemptive trade

Knowing a large order will likely shift the market, the actor places their own buy or sell order to take advantage of the anticipated move.

Realizing a quick profit

After the large order executes and the market reacts, the preemptive trade is closed at a more favorable price, leaving the front runner with a profit and other participants at a disadvantage.

An illustrative example using a large institutional order

Imagine an institutional investor plans to buy a huge block of shares. Their broker, aware of the instruction, purchases shares first for their own account. When the institution's order pushes the price up, the broker sells their stake at a gain. The investor ends up paying a higher price, and market fairness is compromised.

Why front running is treated as wrongdoing

Regulators and market participants view front running as harmful because it:

1. Misuses confidential information — insiders are expected to put client interests first, not profit from privileged knowledge.
2. Distorts market fairness — people with early access get an unfair edge over others.
3. Harms ordinary investors — clients and smaller traders may suffer losses or wider spreads because of the manipulation.

Where front running shows up across markets

Front running can appear in stock, commodity, forex, and crypto markets. Each context has different mechanics, but the basic pattern—someone acting on advance information to secure an unfair profit—remains the same.

How front running works on public blockchains and decentralized exchanges

On many blockchains, pending transactions are visible to anyone watching the network. This transparency lets bots and other actors detect large or vulnerable orders before they are confirmed. Attackers then try to insert priority transactions or otherwise reorder execution to capture the expected profit.

Watching mempools and submitting priority transactions

In public mempools, pending transactions can be observed in real time. Bots often try to pay higher fees or use priority mechanisms to get their transactions processed ahead of a target order, ensuring they can influence the price movement first.

Exploiting slippage in low-liquidity markets

Slippage tolerance is the amount of price movement a trader accepts for a trade to succeed. In thinly traded tokens, high slippage settings make orders especially vulnerable: a bot can buy up liquidity and force the price above the trader's limit, profiting when the original transaction fills at the worse price.

MEV and transaction ordering on fast chains

Maximal Extractable Value (MEV) refers to profits that can be captured by reordering, inserting, or censoring transactions inside a block. On high-speed or low-latency networks, validators or specialized services may extract MEV by prioritizing certain transactions, creating front-running opportunities that are technically different but economically similar to traditional front running.

Practical steps traders can take to reduce front-running risk

While complete prevention is difficult in decentralized environments, traders can lower their exposure with these tactics:

• Set tighter slippage tolerance so large unexpected price moves will cause transactions to fail instead of execute at a worse rate.
• Use private transaction relays or hidden order methods that keep orders out of public mempools until they are included in a block.
• Split large orders into smaller ones to avoid drawing attention from bots that target big trades.
• Consider MEV protection services such as MEV blockers or private execution layers that aim to reduce extractable value for adversarial actors.

Final thoughts on keeping markets fair

Front running erodes trust and increases costs for regular participants, whether it happens in legacy markets or on-chain. Understanding the mechanics—how visibility, fees, and slippage create opportunities—helps traders make choices that reduce risk. At the same time, developers and service providers are building infrastructure to limit these exploitative strategies and promote fairer execution for everyone.