Price Spoofing – Market Manipulation Tactics
What is price spoofing?
Spoofing is defined as bidding or offering with the intent to cancel the bid or offer before execution, submitting or cancelling bids and offers to overload the quotation system of a marketplace; or to submit multiple bids or offers to create the appearance of false market depth.
So spoofing is a manipulative practice which often has the following elements:
Massive-lot orders are placed without the intent of being filled (executed); but instead with the intent to create a misleading impression of increasing liquidity in the market; and/or massive-lot contracts placed at or near the best bid (or best offer) price in a manner to avoid being filled in the marketplace; and/or smaller-lot orders placed on the opposite side of the market from large-lot orders placed by the same trader, with the intent of taking advantage of any price movements that might result from the misleading impression of injecting liquidity that the large-lot orders created.
With the help of high frequency trading algorithms designed for market spoofing, one is able to purchase contracts at lower prices or sell contracts at higher prices by artificially pumping and then deflating the market by placing and cancelling orders.
Now, you may thinking. “Well, I won’t be affected as I do not use the volume indicator in my trading or strategy.”
It doesn’t matter if you use the volume indicator or not, there are so many other indicators that are based off volume that not only one indicator will be compromised, if not all volume based indicators wether you realize that the indicator is based off volume or not.
Now you have an idea as to why I personally do not depend on the use of ANY indicators in my trading.
Market Manipulation is a lot easier than you realize.
– Dylan Shilts