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HFT firms perform a different kind of front running. If I'm an HFT firm and I see a large buy order on the books at exchange A, I can use my low-latency links t
by pcr0 8y ago
HFT firms perform a different kind of front running. If I'm an HFT firm and I see a large buy order on the books at exchange A, I can use my low-latency links to exchanges B, C to execute my own buy orders there before the rest of the market reacts.
It's not illegal, but it is still front-running the rest of the market due to latency arbitrage. Check out Flash Boys by Michael Lewis for more on the topic.
- growse 8y agoThis isn't a definition of front running that anyone in the industry uses. As you say, this is just arbitrage on public information. Latency arbitrage has been occurring for the last 200 years at least, it's an inevitable outcome of any system with multiple, geographicly separated markets. P.S. I read Flash Boys. It's not very good.
- QuackingJimbo 8y agoThis hypothetical HFT firm is part of "the rest of the market reacting" They just happen to be the first among all participants to react. Why is that bad? Somebody has to be first
- jm__87 8y agoPerhaps I have misunderstood what front running is, but I have always thought it is really only applicable when you have an obligation to your clients to give them good execution. You can't front run a market, just your clients. An HFT has no clients on behalf of which they are executing trades, they are just trading for their own account.