There are very good reasons to believe that. The earliest proponents of HFT may have made money by more efficiently using price information. But now there are so many of them that is no longer possible
It is crime.
The most useful model for understanding international high finance is "organized criminal networks"
Front running is when you take an order from a client and before executing it out your own order in first so you benefit from the bumpe or drop in stock price that the client would cause.
The key here is you have advanced knowledge of the order before it hits the market and you have a legal requirement to execute client orders before your own.
I believe it’s also been ruled to be front running if you get knowledge of the client order in advance of it being sent to the market by a third party.
But having a faster network and computer to allow you to react faster than others is not front running.
Take this is an extreme, if I watch a market ticket and react manually with in 20 minutes to news and you read about the news in the paper the next day, did I front run you by trading before you?
It’s the duty to execute a client order before your own and not tell others abouT the order before it hits the market that is the requirement for front running.
The biggest HFT firms are prop shops. They don't even have clients. There aren't any client orders for them to front run! You know not what of you speak.
This is the cheapest defense of HFT front running. Buying order flow and front running other people's clients is still front running. You see what people want, you get it faster and you sell it back to them after you buy it.
Yes, because it makes it very clear you have no idea of what you speak of, as you don't even know enough to use the correct terms for things.
Front running is to act on confidential information in the market to the detriment of the initiator of the information. Once something is no longer confidential, ie the customer order has been processed, and all the information is open, then there can no longer be any front running.
This is the same argument I've heard before. You give a narrow definition for front running and declare there is no front running by your specific and out dated definition that you set.
What's missing is you actually confronting the problem of people seeing orders and buying based on those orders before the original orders go through. What is your term for that? Playing a game of definitions is a diversion from actually talking about the problem.
What’s the big problem with calling other, problematic practices that are definitionally not front-running by another, less confusing name?
Imagine a public official caught taking bribes and calling that embezzlement, blackmail, or driving under the influence of alcohol. Makes about as much sense to me.
> the problem of people seeing orders and buying based on those orders before the original orders go through.
That would be frontrunning, and illegal, as far as I understand. I don’t think it matters if there’s two parties colliding to commit the same crime.
Are you maybe referring to payment for order flow, which also has its problems (but ironically on average yields price improvements over NBBO for retail traders!), but is not that?
What do you mean by "buying the order of somebody ahead of you"? Can you describe it in a bit more detail so we can see if there's an established name for that?
> people seeing orders and buying based on those orders before the original orders go through
This literally cannot happen unless someone is breaking a law. An order is not visible until after it has executed. What can happen is some actor want to get a better price for their order and thus split up the order into multiple orders that it tries to execute simultaneously. Then someone can act on one of those that process quicker before a second of those split up orders end up executed. And that is fine - propagating changes of price quickly between multiple separate market places is a good thing as it lowers the transaction overhead in general.
Are there other “bad” (for the general investing public) strategies out there? Sure! Should some of them be illegal, or be made unprofitable by coming up with fairer (for long-term investors) markets and market structures? Definitely!
But that doesn’t make them the same thing as front running. Why call “bad strategy/phenomenon X” “Y” and confuse everybody?
Yes
Front running is illegal
HFT is front running
There are very good reasons to believe that. The earliest proponents of HFT may have made money by more efficiently using price information. But now there are so many of them that is no longer possible
It is crime.
The most useful model for understanding international high finance is "organized criminal networks"