What is 'frontrunning' in the context of trading?

• A. Placing a trade based on insider information
• B. Confirming client trades after executed personal orders
• C. Conducting trades as a market maker
• D. Serving as an intermediary for trades

Answer: (B)

Frontrunning refers to the unethical practice where a trader executes orders on a security for their own account while taking advantage of advance knowledge of pending orders from their clients. In the context provided, selecting the answer regarding confirming client trades after executed personal orders touches on the concept of frontrunning, as it implies that personal trades are executed before client orders, thereby benefiting from the price movement that results from the client orders.

This practice can lead to a conflict of interest and breaches fiduciary duties, which is why it is deemed unethical in trading practices. The act of placing trades based on insider information or serving as an intermediary does not encapsulate the essence of frontrunning, and being a market maker typically involves providing liquidity in the market, which is distinct from the implications of profiting off client trades.