Front-Running Algorithms

Front-running algorithms are automated trading systems designed to detect incoming large orders and execute trades ahead of them to profit from the subsequent price impact. These bots monitor the mempool in blockchain networks or the order book in centralized exchanges to identify pending transactions that are likely to move the market.

Once detected, the algorithm submits its own transaction with a higher fee or faster execution priority to ensure it is processed first. This practice effectively exploits the latency inherent in transaction propagation and settlement.

In decentralized finance, this is frequently observed as sandwich attacks, where the bot buys before and sells after a user's large trade. It is considered a form of market manipulation that degrades the experience for regular users.