Disclaimer: This article is for educational purposes only. Information provided through the Binance platform does not constitute advice or recommendation for investment or transactions. Binance is not responsible for any investment decisions you make. Please seek professional advice before taking financial risks. The products mentioned in this article may not be available in your region. Important points A preemptive transaction refers to the act of placing an order in advance using insider information before large-scale transactions are executed, thereby making profits from market fluctuations. In cryptocurrency markets, preemptive trading is particularly common in decentralized trading platforms (DEXs), where traders or bots make profits by using transaction visibility and slippage tolerance. To prevent preemptive trading, DeFi traders can reduce slippage tolerance, adopt private trading methods, and use MEV protection tools such as MEV Blocker. Introduction Preemptive trading is a term used in the financial field to describe illegal and immoral trading practices. It refers to the act of using non-public information that traders are about to trade for personal gain. This article will give you a detailed explanation of what preemptive trading is, how it works, its impact on the market, and its application in cryptocurrency trading. What is a preemptive transaction? Preemptive trading occurs when a broker, trader, or financial professional takes action based on insider information. The goal of pioneering traders is to complete their own transactions before large-value orders are executed. The market is expected to develop in a direction that is beneficial to them after large-value transactions are executed. This behavior is seen as a violation of the principles of trust and integrity in the financial markets because it uses the confidential information of its clients to seek personal gain. In traditional markets, preemptive trading usually occurs when large transactions are expected. However, preemptive trading can also occur in cryptocurrency markets, especially in low liquidity markets, such as when trading [Meme Coins] on a decentralized trading platform (DEX) (https://academy.binance.com/en/articles/what-are-meme-coins). How to operate a pre-emptive transaction In order to better understand how preemptive trading works, we start analyzing from a typical preemptive trading scenario in the traditional market. 1. Obtain insider information Preemptive trading usually involves brokers or traders who can obtain information about large transactions. For example, a customer may place an order to buy or sell a large number of stocks, bonds, or other assets. 2. Make personal transactions in advance Brokers know that a client’s transaction may affect asset prices, so they buy and sell the same assets for their account before executing the client’s order. If a customer plans to buy a stock in large quantities, the broker may buy in advance at the current price, and the expected large purchases from the customer will push up the stock price. 3. Profit from market volatility Once a client's transaction is executed and the price changes as expected, the broker will sell the shares (or close the position) they hold to make a profit. Market reactions triggered by clients’ orders will benefit brokers who act on insider information in advance. Example of a preemptive transaction in a traditional market Let's use a hypothetical example to illustrate how preemptive transactions work: A large institutional investor decided to buy 1 million shares of Company X. Investors place orders through their brokers. The broker realized that the large purchase could drive up the stock price, so he bought 10,000 shares of Company X for himself before executing the client’s order. After the customer's order is completed, the stock price will rise as expected. The broker then sells 10,000 shares of its holdings at a higher price, thus making a quick profit. Why is it illegal to get ahead of the transaction? Preemptive transactions are considered illegal in many countries for the following reasons: Utilize Confidential Information: Financial professionals are entrusted to act in the best interests of their clients. Using confidential information for personal gain undoubtedly violates this principle of trust. Destroy market integrity: The first transaction distorts market equity and provides undue advantages for those who have priority access to information. Damage to investors: Customers and other market participants may suffer economic losses due to price manipulation caused by preemptive transactions. To prevent preemptive transactions, the Securities and Exchange Commission and other regulatory agencies have formulated strict regulations and imposed high fines for violations. Types of transactions that are preemptive Preemptive transactions can occur in a variety of scenarios, including: 1. Stock Market In stock trading, brokers may use news of large pay or sell orders to conduct personal transactions. This is one of the most common forms of preemptive transactions. 2. Commodity and Forex Markets Traders in the market can obtain information about large amounts of pending transactions and may conduct pre-trading transactions if they can obtain information about large amounts of pending transactions. 3. Cryptocurrency Market With the increasing popularity of cryptocurrency trading, taking the lead in trading has become a major concern in this field, and this situation is even more common among decentralized trading platforms. We will explore this in detail below. Pre-emptive transactions in the cryptocurrency market How cryptocurrency trading works In the cryptocurrency fieldPreemptive transactions usually involve blockchain transactions on decentralized finance ([DeFi](https://academy.binance.com/en/articles/the-complete-beginners-guide-to-decentralized-finance-defi)) platforms. This is particularly common in protocols such as decentralized trading platforms ([DEX](https://academy.binance.com/en/articles/what-is-a-decentralized-exchange-dex)) and automated market makers ([AMM](https://academy.binance.com/en/articles/what-is-an-automated-market-maker-amm)). These transactions are processed by smart contracts and can be viewed publicly on the blockchain before confirmation. The specific methods are usually as follows: Observe pending transactions. In public chain networks such as [Ethereum](https://academy.binance.com/en/articles/what-is-ethereum), [Solana](https://academy.binance.com/en/articles/what-is-solana-sol) and [BNB Chain](https://academy.binance.com/en/articles/what-is-bnb-chain), transactions are publicly visible before confirmation. A malicious trader or bot may monitor large amounts of pending transactions in the network. Submit a priority transaction. On Ethereum and BNB Chain, robots can give priority to their transactions by paying a higher [Gas fee](https://academy.binance.com/en/glossary/gas). On Solana, preemptive transactions are usually achieved by paying priority fees or executed by verifiers who can prioritize transaction information. By paying higher Gas fees, malicious traders can ensure that their transactions are processed before the target transaction, thus profiting from price fluctuations caused by the original transaction confirmation. Profit from price changes. For example, if a pending transaction involves buying a token in large quantities, the first trader will buy the token at the current price. Once the original transaction pushes up the price, the preemptive trader can sell the tokens at a high price and make a profit from it. In addition to targeting large-scale trades, preemptive traders will also take advantage of low-liquidity markets and traders in DEXs such as [Uniswap](https://academy.binance.com/en/articles/what-is-uniswap-and-how-does-it-work), [PancakeSwap](https://academy.binance.com/en/articles/a-guide-to-pancakeswap) or [Raydium](https://academy.binance.com/en/articles/what-is-raydium-ray) etc. The high [slip point] (https://academy.binance.com/en/articles/bid-ask-spread-and-slippage-explained) set on is to implement preemptive transactions. Take advantage of the slippage of low liquidity markets Slip-point tolerance refers to the spread range that traders are willing to accept to avoid trading failures. In low-liquidity markets, setting a higher slippage tolerance may make traders more vulnerable to preemptive trading. Suppose Bob wants to buy a Meme coin with less liquidity on DEX, he may set a higher slippage tolerance to ensure the transaction can be completed smoothly. The preemptive trading bot can detect this and buy existing liquidity first by paying a higher handling fee and then resell the tokens to Bob at a higher price. Since Bob's slippage tolerance allows price deviation, he paid a higher amount than expected without knowing it, and the preemptive trader would make a profit. The greater the order size and slippage tolerance of Bob, the more significant the price impact will be. Even in high liquidity markets, this form of preemptive trading can occur if the slippage tolerance is set too high. Robots can make unfair profits by manipulating prices. MEV on Solana vs. preemptive deals Solana is an efficient and scalable blockchain, but there are some problems with preemptive transactions, mainly due to the maximum extractable value ([MEV](https://academy.binance.com/en/articles/what-is-maximal-extractable-value-mev)). MEV refers to the benefits that a validator or robot can obtain by manipulating the order of transactions within a block. On Solana, since the transaction is publicly visible before final confirmation, this provides traders with the opportunity to exploit this information, resulting in a MEV-powered preemptive transaction. Unlike Ethereum confirms transaction priority based on Gas fees, Solana allows traders to get priority processing of their transactions by paying priority fees. This means that bots and validators can give priority to their own transactions over others’ transactions by paying higher feesThis is similar to the traditional preemptive deal. When large pay or sell orders are detected, the MEV robot quickly submits its own orders, thus profiting from expected price fluctuations. To address the preemptive trading issues related to MEVs, developers are actively developing solutions such as privacy [memory pool] (https://academy.binance.com/en/glossary/mempool), fair trade sorting systems, and MEV auction mechanisms that can fairly redistribute gains. Although Solana’s high processing speeds can reduce some of the risks, MEV remains a challenge that needs to be addressed continuously. Prevent cryptocurrency trading first Most cryptocurrency transactions occur on decentralized platforms, which poses challenges in preventing and punishing preemptive transactions. However, some precautions have been put into use. To prevent cryptocurrencies from trading first, traders can take the following measures: Reduce slip tolerance: Reduce risk by reducing slip tolerance. Use privacy trading methods: hide order information and avoid being noticed by robots. Split large-value transactions: Split large-value transactions into multiple small-value transactions to reduce market attention. Use MEV protection tools: such as MEV Blocker, Flashbots (Ethereum), or Privacy Memory Pool (Solana). By understanding how cryptocurrency trading works, traders can better protect their investments and avoid unnecessary losses. Conclusion Taking the lead transaction seriously violates market ethics and trust. Whether in traditional financial markets or in emerging fields such as cryptocurrencies, such behavior undermines the fairness and integrity of the market. By understanding how preemptive trading works and taking effective precautions, traders, investors and regulators can work together to create a more fair and transparent trading environment. Further reading [Detailed explanation of bid-ask spreads and sliding spreads](https://academy.binance.com/en/articles/bid-ask-spread-and-slippage-explained)[Understanding Raydium (RAY)](https://academy.binance.com/en/articles/what-is-raydium-ray)[What is a decentralized trading platform (DEX)? ](https://academy.binance.com/en/articles/what-is-a-decentralized-exchange-dex) Disclaimer: The content of this article is provided "as is" and is for general information and educational purposes only and does not constitute any representation or warranty. This article does not constitute financial, legal or other professional advice and does not intend to recommend the purchase of any specific product or service. You should seek advice from the appropriate professional consultant on your own. If this article is contributed by a third party, please note that the views of this article belong to third party contributors and do not necessarily reflect the views of Binance Academy. 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