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This doesn't sound right. Some points:

- A trader looking to buy futures is almost certainly not going to send their order to several exchanges. The main exchanges list distinct contracts (with, I believe, some cross-exchange listings that are just cross-continent). A person sending an order is not going to get it routed to several different exchanges.

- Your example itself would result in a losing trade for whomever was doing this trading. Let's call this HFT guy, "HFT", and pretend like you were talking about equities(which does have the multiple exchange property). In order to accomplish what your trader was doing, HFT has to:

  1 - buy up all existing shares at P
  2 - probably buy up all the shares at P+dP as well (because all US markets have price-time priority)
  3 - place sell orders at P+dP that would fill this guy's X contracts
  4 - According to your story, they (or someone else) then try selling at price P again.

This means they:

  1 - Took a large long position
  2 - Took an even larger long position at a worse price, paying commission for this
  3 - Managed to sell some of their position at the same price as (2)
  4 - Are now trying to sell back their position at P.

If you look through these steps, you just end up losing money, while taking on unnecessary market risk.

The size of the position only depends on the order book. You assume that the position should be large, but in markets that are not very liquid that's not necessarily the case.

Why do you think that situation is illegal? The HFT does not know you're buying shares on all the exchanges, they've only seen the shares at price P be bought on a single exchange (and that happens all the time without people subsequently buying shares at price P on all the other exchanges). Moreover, even in the scenario you described, that the shares were bought on the first exchange is public information -- anyone is free to use that information as they see fit (such as turning around and buying shares on another exchange, or pulling your offers at P from that exchange).

'idohft responded (well) directly to your scenario, so I'll respond on a meta note:

Putting aside whether or not your scenario is possible, profitable or actually front-running; by your own admission, not all of HFT is illegal, so why do we need to care about HFT trading based on the order book? What is sinister about formulating a trading strategy based on the order book itself?

In case this hasn't become clear - I am trying to demonstrate (Socratically) that the premises you're deriving your conclusions from aren't entirely coherent.

can't reply to idohft, so I'll do it here.

1. perhaps it was not a future, I don't recall exactly

2. ??? If HFT guy buys N lots at P, sells N-X at P+dP, sells X at P, he still makes X*dP as profit. The risk he takes only depends on the size of N.

(1) -- ok, sure

(2). That is not what I said. To sell at P+dP, you need to buy up all the shares at P+dP as well. That's because of price-time priority, which almost all the major markets have (with some exceptions, most notably NYSE -- and even then, their book is mostly price-time priority). This is the idea that a person who placed their order first, has priority over those who placed their orders after. A strategy that makes the trade that you are proposing must then also take out all of P+dP and sell against the incoming order. In a usual case, you pay commission when trading into that position, and (maybe) earn commission when you sell it back (as the liquidity provider). In no market is the commission earned greater than the commission paid. The shares you buy-and-sell at P+dP are straight up loss, and that's before figuring out if X (the incoming shares that you are supposedly front-running) is greater than the #shares at P+dP anyway.

"The risk he takes only depends on the size of N" -- that is true -- that is always true, if you are making an unhedged trade.

If HFT is so awesome why don't you try doing it yourself?