Transcription
What is front running? Front running is when you are a broker and you see a transaction coming through. And because you know the transaction's coming through, therefore you know there's going to be, say, a buyer for a certain asset, right? Let's, let's do this with stocks for a second, right? You know someone's gonna be coming along and they're gonna want to buy, say, Apple stock. Oh man, I know a deal is coming in for Apple stock, and I know that they're gonna be ready to bid this certain price. So I will go buy that stock for a price a little bit less than what I know the other person is going to pay, so that I can go turn around and sell it to them.
So the idea behind front running is if you are aware of the deal flow of others, then you are able to anticipate what prices the market's about to bear and be able to make money in the middle. If you know that someone is willing to come and buy Apple stock, or say, I'm just making up numbers here, for 200, and the current price of Apple stock is like 199, then you can go in and buy the stock for 199, knowing that this person is gonna come around and buy it from you for 200, and you're gonna make a dollar risk-free.
So that would be an effective front-running. Real quick, unlike Ethereum, there's no gas limit on expressing your gratitude, so go ahead and click that like button. Thank you.
And front running is illegal in most circumstances because the brokers are supposed to have fiduciary duty to the people who they represent, to not just use their information to basically raise prices, right? The fact that you're willing to buy Apple stock at 200, you still would have preferred to buy it at 199. So if this guy is saying, "Oh, well, your tolerance is 200," so I'm just gonna make sure you pay the absolute maximum you're ready to pay. I mean, then they're basically taking a dollar from you as a customer as a result of knowing about your deal.
Companies like Robinhood have been accused, right, of providing order flow information to high-frequency funds who are in the business of trying to figure out where the market is going and make those trades early, so they can be getting their head. And if they got something as direct as, "Hey, here's the people who are about to do this deal, you know, go go make it pricier for them," that'd be parasitic on the market, right? Because it's making it more expensive for the retail buyers and basically turning them into suckers.
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