Front running.

In plain English

Front running is when a broker, adviser, or employee who learns of a pending order uses that knowledge to trade for their own account first. The customer's large order is expected to move the price, and the insider positions to capture that move. It violates the duty a firm owes its customers and is treated as fraud by regulators, with FINRA rules addressing it directly. The same idea covers tipping a friend or an affiliated account rather than trading yourself. What makes it wrong is the use of non-public information about someone else's order, not the direction of the trade.

01Why it matters

If a firm can trade ahead of your order, you get a worse price and the firm gets a better one, which is why order-handling rules and firm surveillance exist.

02The math, step by step

Say a broker receives an order to buy 400,000 shares of a stock that trades 600,000 shares a day. Knowing that order will lift the price, the broker buys 5,000 shares for a personal account at 30.00, fills the client starting at 30.40, and sells into the move. That 2,000 dollar personal gain came out of the client's execution.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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