Same old same old. Only these days it gets done by building data centres in across the river New Jersey and as-the-bird-flies microwave links between New York and London...

Not really. They're reacting to someone actually trading in public on a public market. That is not front running. Someone has to react to a thing that actually happened in the public market, quickest. By definition someone has to be first. Cheating to get there, eg breaking before the starting gun, is illegal. Reacting first is not.

Front running is where you get information about a trade before the trade happens, illegally, and get your own trade in first with advance knowledge that you should not have. That's still 100% against the law whether a computer is involved or not. Do it and you will go to jail. If you got your information from the public market because it is a thing that already happened, then ok. That is really just fine. Other laws might be being broken somehow in other ways or they might not but seriously that's the whole point of a public market and using public information. Everyone has the chance to react as fast as they can.

You're both correct. Front running has legal and illegal versions. Getting any non-public information and using it for trading purposes is illegal, however you can still front-run with public information. Markets react at different speeds and so do indexes, if your machine is set up closer to the exchange and has a faster algorithm you can front-run an index by using information about the changes in the index's stocks.

In the case of this sort of information-speed arbitrage you're not making any stock analysis decisions, you just know an index has to respond a precise way to the stocks within it, and you're able to beat this information to the exchange and buy it ahead of the change.

As others have pointed out, taking a term that has a specific legal definition to relate to an illegal practice and broadening it to cover both legal and illegal activities doesn't seem like a great idea if your aim is to try and increase people's understanding of the markets. It just adds confusion. This is a shame, as your point about markets not being a level playing field because different participants are able to execute on information in different ways is worth making, especially in the context of new types of exchanges.

An analogy would be to redefine all killings (lawful or otherwise) as "murder". It's not helpful. Words have specific meanings in specific contexts, so lets stop overloading them so much when we don't have to.

Ok well technically front-running is a term used in the industry to specify a type of trading, it's not illegal in itself. However, you can front-run in an illegal way. Like driving a car isn't illegal but you can do it in an illegal manner. The act of front-running becomes illegal when you do it based on insider information, much like the driving becomes illegal when you speed.

I hope this clears things up.

To be very clear to all readers: front running is illegal. No one in the automated trading industry refers to the non-illegal trading that they do with a reference to illegal trading.

As discussed elsewhere in this thread (search my nick), "no one" refers to frontrunning as encompassing both legal and illegal cases except the author of the definitive textbook on market microstructure.

Thank you, I gave up arguing it and was getting massively downvoted for my comments.

ok

Wow! Didn’t know about these “secret” microwave networks.

Eg https://arstechnica.com/information-technology/2016/11/priva...

They're not really secret, they're standard practice. Not all that widely known, but that's because they're geeky trivia to most people. There are multiple microwave relay networks between Chicago and NYC. It's neat stuff.

I've worked for an options market maker, chasing nanoseconds of latency improvements. If you want racks in the exchange data center, you have to pay more to be on one side of the room vs. the other, because the latency improvement for being a couple hundred feet closer actually matters.

If you are really curious, I highly recommend this blog!

https://sniperinmahwah.wordpress.com/ (Many people who work in HFT are quite familiar with it.)

It's an entertaining and fascinating "view of the inside."

Some hft firms are rumored to be using short wave radio. Everything old is new again.

https://hackaday.com/2018/05/12/hft-on-hf-you-cant-beat-it-f...

Reminds me of the term "sneakernet." I wonder if "front running" was a thing back in the days of manually moving changes onto a source control server located in-office. I can imagine a mad dash to get code in first on a Friday afternoon.

sneakernet is still a useful thing for large transfers (even in literal walking distance, sometimes). like if i'm sending a large file to a person in the same office or house, i might prefer to just put it on a thumb drive and hand it to them, instead of copying it to some network share or something.

i imagine this will be true for a while (i.e. the practical throughput of sneakernet in many cases will keep outpacing the practical throughput of wired and wireless networks, probably for a long time).

It was only 30 years ago that manual trading ended in London. Similar time period for the US. Other exchanges and countries lasted much longer. See Eddie Murphy's Trading Places.

https://www.bbc.co.uk/news/business-37751599

There's actually still a couple hundred or so traders in the pits at the CME in Chicago. Certainly nothing like what it used to be, though.

> The origin of the term is kind of comical to modern ears

It's interesting, but I don't think it stands out as "comical" from the finance realm, given that programmers unironically talk about "race" conditions during the "handshakes" from "tunneling" with a "certificate" in order to to "serve" up "pages".

On a far-more-obscure note, the etymology of "computer" itself can be traced back towards "something which counts using small pebbles of limestone."

It is comical in the sense that software bugs being named after a literal bug (a moth to be exact) is.

If you’ve ever cut and paste with scissors and a glue stick...