How do you front run a limit order ?

Imagine you place a limit order at $101. The HFT sees the stock dropping to $100. The HFT then has the option to buy the stock at 100 and sell to you for 101, making $1/stock profit.

On the other hand, imagine the stock is currently trading at 105. The limit order will hang there, waiting for the price to drop below the limit you specified (and either never gets executed, or then becomes the flow above). Rinse and repeat.

Note they don't need to make money in every transaction, but the bigger the order flow, the more opportunities they have to make profit on top of traders.

Hopefully someone who knows more than me will come along, but can you front run a limit order?

Say the price of the stock is $101. You place a limit order for $100. HFT sees that but can’t do anything since the stock price is above the limit.

Stock price drops to $99.5. Your order is the executed by the exchange before the HFT can buy at $99.5 and sell to you at $100.

The exchange is where the orders are executed, but the exchange doesn't execute the orders. The market makers do that job.

Look at the companies listed in the disclosures. Citadel appears to have the largest share in all of the examples listed. Their website [1] claims that:

> We act as a specialist or market maker in more than 3,000 U.S. listed-options names, representing 99% of traded volume, and rank as a top liquidity provider on the major U.S. options exchanges, executing approximately 39% of all U.S.-listed retail volume, making us the industry’s top wholesale market maker.

Citadel is paying Robinhood to put your limit order into their system at the NYSE or NASDAQ or whatever other exchange and then they handle the execution of it. Also, I don't believe that this article is claiming that Citadel et al are the high frequency traders, but that the high frequency traders are connected to their platforms and profiting (in some unspecified manner) from the orders that come in.

[1] https://www.citadelsecurities.com/products/equities-and-opti...

It's been over a decade (2007) since I dealt with order books, but when I was looking at this (writing a product to detect trade-throughs), it was a Reg NMS violation to execute an order for a price worse than the best listed on an exchange at the time.

...OTOH, what that product revealed was that Reg NMS violations were pretty rampant and the SEC wasn't interested in doing anything about it. You may have difficulty enforcing this.

> it was a Reg NMS violation to execute an order for a price worse than the best listed on an exchange at the time.

Orders take time to process. HFT guys are fast enough to react and make money from it.

If you know what other people are doing you can cut in front of them.

You can beat someone to the punch who may have traded better than the limit.

It’s worth $26 on a 100K transaction for the HFT firms. So let’s say it’s worth $50 to them. Not s big deal if you buy and hold forever. If you day 20 times a year because you think it’s free, that $50 times 20 becomes $1000, or 1% of your stake.

HFT and front running are two different things. HFTs could front run, but by definition don’t have to to be an HFT.

What is front running?

Interesting. So basically RobinHood has so many buyers and it lets them see a bunch of trades for a stock right before a large subset of these trades happens, then they HFT trade microseconds before the trade happens and ride the wave upwards? Or vice versa downwards?