How Do Options Trading and Financial Derivatives on Crypto Platforms Introduce New Front-Running Risks?

Derivatives trading, especially options and futures, involves complex pricing models and leverage, creating larger, more predictable price movements from large trades. Front-runners can exploit the execution of a large derivative trade, such as a liquidation, by trading the underlying asset or related derivatives.

This is amplified by the high leverage common in crypto derivatives, making the anticipated price impact greater and more attractive for front-running bots. Regulatory oversight in this area is particularly fragmented.