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What Is ‘Information Leakage’ and How Does It Impact Market Efficiency?

Information leakage occurs when non-public information about a large trade or trading strategy becomes available to other market participants. This allows them to front-run the order, leading to adverse price movements for the original trader.

This behavior reduces market efficiency by discouraging large liquidity providers from participating, leading to wider spreads and shallower order books.

How Does Front-Running in DeFi Compare to ‘Insider Trading’ in Traditional Finance?
What Are the Differences between Front-Running in Traditional Finance and on DEXs?
What Is the Risk of “Information Leakage” in a CEX’s Derivatives Clearing Process?
What Is ‘Information Leakage’ in the Context of a Public Order Book?