Comment: This is as old as Rome: Front running (+solution) (Score 1) 271
I've worked in a company that makes online trading software, and this kind of abuse is as old as stock exchanges,
also without high speed networks. It's called "front running":
1 - Customer sees stock offer X at nice price of, say $ 90.
2 - Customer ask broker: "Buy X for me at the *current best* price"
3 - Broker quickly buys X at $90 for *himself*, the next best offer for X on the exchange is now $95.
4 - Broker then sells *own* X to Customer for the current best market offer of $95
>>> And steals $5 profit without taking any risk.
De prevent this the Customer should do two things:
A - Always specify the price at which you want to buy.
B - Check the counterparty you are buying from.
If you notice that your 'nice price' is often gone just after you have placed your order, something is wrong...
also without high speed networks. It's called "front running":
1 - Customer sees stock offer X at nice price of, say $ 90.
2 - Customer ask broker: "Buy X for me at the *current best* price"
3 - Broker quickly buys X at $90 for *himself*, the next best offer for X on the exchange is now $95.
4 - Broker then sells *own* X to Customer for the current best market offer of $95
>>> And steals $5 profit without taking any risk.
De prevent this the Customer should do two things:
A - Always specify the price at which you want to buy.
B - Check the counterparty you are buying from.
If you notice that your 'nice price' is often gone just after you have placed your order, something is wrong...