Front-run

To front-run means to trade on non-public information about a future transaction, often in financial markets. This involves entering a trade before a large anticipated market move, leveraging insider knowledge to profit from the price change caused by that transaction. It's considered unethical and often illegal, as it gives an unfair advantage to the front-runner, potentially harming other market participants. The term can also extend to non-financial contexts where an individual or entity attempts to act before others based on advance knowledge.

Front-run meaning with examples

• The SEC investigated the brokerage firm for front-running its clients' large block trades, buying shares right before executing the clients' orders, boosting profits at their expense. The evidence suggested they were actively monitoring client orders to exploit this information, which is a blatant violation of market regulations, making huge profits while cheating their customers.
• Before the announcement of the merger, rumors circulated about executives front-running the news, acquiring shares in the target company. This insider trading, if proven, would lead to severe penalties and reputational damage, underscoring the importance of ethical conduct in financial markets.
• In a real estate development project, contractors could be accused of front-running by purchasing adjacent properties before announcing the plans to the public. Then by purchasing the adjacent properties, contractors can inflate the price of those properties and make huge profits. These kinds of activities would be extremely controversial.
• A hedge fund was accused of front-running a major acquisition, purchasing shares in the target company before the announcement was made public. That hedge fund's actions raised serious questions about market fairness and the need for stringent regulatory oversight to prevent such practices. They were then investigated for market manipulation.
• Journalists reporting a major news story were suspected of front-running the story by trading on inside knowledge, exploiting the upcoming impact on specific companies before the article's release. This raises serious ethical issues as this breaches trust and undermines credibility as the reporter has an unfair advantage over the public.