Does the Use of Derivatives Increase or Decrease Front-Running Risk on a CEX?

The use of derivatives generally increases the complexity and potential impact of front-running risk on a CEX. Derivatives, especially those with high leverage, magnify the profit potential from small, successful front-running trades on the underlying spot asset.

Furthermore, the need for large-scale hedging or liquidation of derivatives positions can generate predictable, large spot market orders. These large orders are prime targets for front-running, as their price impact is nearly guaranteed to be profitable for the front-runner.