For the uninitiated, "spoofing" does NOT mean what you think it might, e.g. spoofing network packets or making fake trade records. "Spoofing" simply means placing orders on the exchange orderbook which one supposedly does not intend to execute. I've never understood this, because any bid/ask order on the orderbook CAN be executed against, until it is canceled. If they were "flashing" large bids/asks that were being i…
If you spoof a decent distance from the inside, you wouldn't be that sad to get filled anyway
I was a CFTC consultant for a time analysing suspect code subpoenaed in an investigation. I can say that the parameters for analysis were very strict and required explicit proof of spoofing by the app involved. The people I was involved with were definitely not ghost hunters. They took their role very seriously and were not looking to bust someone who wasn't being intentionally manipulative.
I'm sure there are other anecdotes, but it left me feeling like at least this government org was doing what it was supposed to.
> On the other hand, it will always happen given the incentive. A big negative incentive is law enforcement. Otherwise you could make the same argument for literally every single other kind of crime. Someone does you wrong? Well there's a big incentive to straight up take their kneecaps. But you know, the law and whatnot seriously disincentivizes that kind of behavior. > This law is unworkable and not sure if there's…
If I understand correctly, the people harmed by the practice of spoofing are day traders who naively believe they can do technical analysis on an order book to determine the short-term direction of prices. Nope, I don't really feel sorry for either of them.
Day traders mostly don't even have access to real-time L2 market data, so they mostly can't be harmed by spoofing.
The harmed parties are algorithmic traders that use L2 market data to adjust their theoretical value.
As a trader, that does look really bad. These people know that the market looks at the orders to guess the state of supply and demand. The penalty looks big but it's over an 8 year period. It's not exactly a secret that some market participants work out some kind of imbalance measure, and of you've ever implemented a system like that, like I've done, it will have crossed your mind that you could shove a load of order…
In crypto spoofing is pretty prevalent. There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. It's annoying to see, but not a big deal per se: your order book imbalance features just get weighted less heavily and you move on. ofc spoofing is illegal in tradfi, but if it wasn't, I kind of doubt it would even matter: market participants wou…
There are also trivial technical solutions to this. Make orders non-cancellable for a certain period of time, throttle cancellation rate, etc. Any crypto exchange could implement this and win market share if it is really a feature that traders want.
In crypto spoofing is pretty prevalent. There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. It's annoying to see, but not a big deal per se: your order book imbalance features just get weighted less heavily and you move on. ofc spoofing is illegal in tradfi, but if it wasn't, I kind of doubt it would even matter: market participants wou…
There are also trivial technical solutions to this. Make orders non-cancellable for a certain period of time, throttle cancellation rate, etc. Any crypto exchange could implement this and win market share if it is really a feature that traders want.
One solution which should be on the table is to not prevent it, at which point people stop looking at order book imbalance or volume as a signal. The fundamental question is what is lost if there's no signal in order book data. Does it hurt price formation? Does it hurt liquidity? All of these are empirical questions. You also have to compare it not to the scenario where everyone abides by anti spoofing rules, but one in which compliance is imperfect (as evidenced by this article). There are defenses against market manipulation, but they can run afoul of the very rules against it, which leaves law abiding actors vulnerable. It's not clear at all that the current equilibrium is the right one, but sadly the discourse is rarely around the rules most conducive to liquidity, it generally starts with the premise that any kind of strategic order placement is inherently deceptive and wrong.
In crypto spoofing is pretty prevalent. There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. It's annoying to see, but not a big deal per se: your order book imbalance features just get weighted less heavily and you move on. ofc spoofing is illegal in tradfi, but if it wasn't, I kind of doubt it would even matter: market participants wou…
There are also trivial technical solutions to this. Make orders non-cancellable for a certain period of time, throttle cancellation rate, etc. Any crypto exchange could implement this and win market share if it is really a feature that traders want.
If I can't cancel I must quote wider, just like how if I can't be sure the exchange will even be up during volatility then I can't go 3x long futures at one venue and 3x short at another.
As a trader, that does look really bad. These people know that the market looks at the orders to guess the state of supply and demand. The penalty looks big but it's over an 8 year period. It's not exactly a secret that some market participants work out some kind of imbalance measure, and of you've ever implemented a system like that, like I've done, it will have crossed your mind that you could shove a load of order…