Front-running is an investing strategy that anticipates the impact of upcoming trades on the price of a security. It is illegal for brokers or asset managers to practice front-running using trading information about their own or another broker's clients, and this is punished by the Securities and Exchange Commission. However, front-running is not always illegal, and investors can use this strategy to make a profit based on the predictable effect of a certain transaction on the price of a stock.
In front-running, a trader will take a position in an equity just before a brokerage takes a position that will cause the stock to move in a predictable way. The most common example of front-running is when an individual trader buys shares of a stock just before a large institutional order for the stock which will cause a rapid increase in the stock's price. This information can be obtained legally through monitoring the bids and asks on the market and the investing transactions of institutional investors like hedge funds. It can also be obtained illegally, such as when the research analysts of an investment bank pass insider information to the brokerage arm of the business, or when a money manager takes a position in a stock before convincing a client to make a large investment in that same security.
Front-running can be done illicitly by a brokerage, which can profit using insider information
But what if somebody recommends to Mr.X to buy Vodafone Shares and Mr.X buys the stock of Vodafone.If it matches with the deal of Morgan stanley,whether it constitutes Front Running.
Front-running is not always illegal, but could be considered unethical or a "parasitic" type of investing where profits are made from anticipating or reacting to another broker's trading patterns.