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Front running is simplistically placing your own orders in front of your customers orders based on the knowledge that the customers orders will be executed.

Buying at better than requested rates and reselling to a customer based on a request from that customer to buy at a specific point is not front-running the customers order, it's literally just carrying out the customers order, but pocketing the difference between what you can find buy the asset at and what the customer decided to pay.

Think of this, you pay someone a fixed amount to buy you a PS5. When he gets to the shop there is a sale, so he pays less than he expected and less than you expected, but he's fulfilling your order at the agreed price so he pockets the difference. That's not front-running. He is making money fulfilling your order, but it's not front-running.

Now second scenario imagine you again pay a fixed amount for him to get you a PS5. He comes back saying "sorry, but they didn't have any left ... but I just happen to have bought 4 myself before I could fulfill your order, I'm willing to sell you one at an elevated price". That's front-running. He executed his own order, in front of the one he was carrying out for you, with the knowledge that he would be able to make money because of your order.

Note that the illegal part is not "making money by buying and selling something". It's perfectly legal for someone to buy the last PS5 and resell it at a higher price to make money. The illegal part carrying out such an order based on the inside knowledge of your pending order and front-running your order with their own.

Naturally this is rather fuzzy explanation, take it with a grain of salt.




That was a great explanation, thank you.




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