What it is:
How it works/Example:
Let's say John Doe is a CEO. She tells him to buy 5,000 of Company XYZ for her account. John executes the trade for Jane and then tailgates by buying another 5,000 shares for himself because he has been watching Company XYZ and agrees with Jane that the CEO change should be a good thing for the stockholders.
In some cases, tailgate when the client's order is so large that its execution affect the price of the security.
Why it matters:
Tailgating is not the same as frontrunning. In frontrunning, the broker executes the trade for his own account after executing the client's trade. Frontrunning is illegal; tailgating is just in poor taste for many reasons, not the least of which is that the broker's job is to make for his clients and know more than they do.executes the trade for his own account before executing the client's trade. In tailgating, the