Trading Ahead

Definition of 'Trading Ahead'


When a specialist trades securities for his or her own firm's account when there are unexecuted customer orders to buy or sell such securities, which could have been executed at the same price. Trading ahead is specifically prohibited by NYSE rules, since it places the customers at a disadvantage when trading. As well, by taking undue advantage of his or her privileged position, the specialist is damaging the integrity of the market.

Investopedia explains 'Trading Ahead'


Trading ahead was initially prohibited by NYSE Rule 92. Subsequently, in order to reduce regulatory duplication and streamline compliance, the NYSE and AMEX replaced Rule 92 with FINRA Rule 5320 with effect from Sept. 12, 2011.

FINRA Rule 5320 prohibits a member firm that accepts a customer order for a security, but does not execute it, from trading the security for the firm's proprietary account at a price that would have satisfied the customer order. However, the firm can redeem the situation by immediately thereafter executing the customer order at a price that is at least the same, if not better, than the price it obtained for its own account. Otherwise it would be a violation of Rule 5320.

There are certain exceptions to Rule 5320, including exceptions for large orders and institutional orders, a "no-knowledge" exception and an odd lot and bona fide error transaction exception.



comments powered by Disqus
Hot Definitions
  1. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  2. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  3. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  4. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  5. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
Trading Center