Front-running — Definition | Polymarket Trade

In depth

Front-running occurs when a trader learns about a pending trade before it hits the market and submits their own order first to take advantage of the price movement that will result. The term originates from traditional financial markets, where a trader with access to order information might buy or sell an asset just before executing a large client order, knowing the client's order would move the market in their favor. This is a form of insider trading and is illegal in regulated markets. In prediction markets, front-running is theoretically possible but practically difficult depending on the platform's matching engine and settlement mechanism.

In traditional stock and futures markets, front-running is a serious regulatory concern because the order flow is sequential and visible to certain privileged participants. An exchange or broker with information about a large buy order coming through might front-run it by buying the same asset first, pushing the price up, and then profiting when the large order executes at the higher price they created. This information asymmetry—that some traders know about incoming orders before others—creates unfair advantages. Prediction markets like Polymarket operate with a fundamentally different structure designed partly to eliminate this problem. Instead of a centralized order book maintained by a single exchange, Polymarket uses an automated market maker combined with a continuous CLOB (Central Limit Order Book). This architectural choice significantly reduces front-running opportunities because prices are determined by a formula rather than purely by sequential order execution.

On Polymarket specifically, the matching engine structure makes traditional front-running nearly impossible for retail traders. When you submit an order, it either matches against existing liquidity on the order book or settles against the AMM at a price determined by the current contract state and the pool's formula. Because all orders are processed transparently and settled according to predetermined rules rather than by privileged timing, no trader can place an order that benefits from knowing your order is coming. The blockchain-based settlement of Polymarket's CLOB means that transaction ordering is largely determined by consensus mechanisms and block builders rather than by privileged access to information from a centralized intermediary. This is one of the significant advantages of decentralized prediction markets: they remove the information asymmetries that plague traditional exchanges and brokerages.

That said, traders on Polymarket do encounter concepts closely related to front-running, even if pure front-running in the traditional sense is not possible. Slippage—the difference between the expected price and the actual execution price—can increase significantly if a large order moves the AMM or shifts market prices during volatile conditions. A trader placing a large order against thin liquidity will experience worse pricing because their order has price impact. Additionally, MEV (maximal extractable value) from block builders and validators on the Ethereum blockchain can theoretically affect transaction ordering at the L1 settlement level, though this is largely separate from prediction market mechanics. Traders should be aware that liquidity on specific outcome pairs can vary widely, meaning the expected price impact of their order is much larger on a thin pair than on a well-capitalized one.

A common misconception is that slippage equals front-running. In reality, slippage is the inevitable price impact of large orders in a market with finite liquidity, whereas front-running specifically involves a trader with advance knowledge of incoming orders placing bets to exploit that information advantage. Another related concept is sandwich attacks, which occur on blockchains when a MEV searcher observes a pending transaction in the mempool, includes their own transaction before and after it, and profits from the price movements they create. While sandwich attacks are theoretically possible on Polymarket due to its blockchain infrastructure, they are not the same as traditional front-running because they do not rely on information asymmetries at the exchange level. Understanding these distinctions helps traders navigate prediction markets effectively and recognize when they are paying the true cost of liquidity rather than being exploited by a more informed counterparty.