[blancheneige]

I don't see anything fundamentally wrong with spoofing. If you really mean your market order then you don't care about whether resting orders are bluffing, unless you're bluffing yourself. You'll be matched against the best available bid/ask before these can be causally removed, period.

[1e-9]

It's fundamentally wrong because markets exist to facilitate the efficient exchange of assets and spoofing lowers this efficiency. More specifically, spoofing tricks others into thinking that their transaction costs will be higher or lower than reality. This causes participants to transact at unnecessarily bad prices, which damages the price discovery process and adds cost.

[blancheneige]

>More specifically, spoofing tricks others into thinking that their transaction costs will be higher or lower than reality.

How so? If you want to market buy 100 shares at time t and the "spoofed" limit order is up at time t, you will buy into the spoofed order. Only if the spoofer somehow has knowledge of your intention to buy at time t and quickly pulls the rug from under your feet at time t-t1, where t1 would have to be an unrealistically small amount of time, can they mess with you. So clearly this argument against spoofing, i.e. that it's creating a false sense of liquidity, doesn't work in an environment when the quote can flicker dozens of time per millisecond.

It's more likely that spoofing is used to, say, protect a margin position from liquidation by flashing a wall above/below it hoping to scare away other market participants. In which case it shows the latter don't really mean their move to begin with, or that they are merely trading to squeeze gains on short timeframe, which has hardly anything to do with "facilitating the efficient exchange of assets".

[1e-9]

The spoofer tricks you into doing something you would otherwise not do. See my example below in my reply to baybal2.

[baybal2]

Can somebody with a better knowledge of American securities law tell what is an actual charge for that "spoofing"?

"Placing a trading position with a sole purpose to benefit an another existing trading position" — sounds exactly what most of day trading is.

[1e-9]

Spoofing is the act of placing an order with the intent to cancel it before execution.

[baybal2]

But you have to cancel orders if you put multiple of them at different price points, and it was your intention to only let 1 through, or how does it work then?

[1e-9]

Example:

1) Spoofer places an offer to sell a small amount at a high price.

2) Spoofer places a bid to buy a huge amount at a lower price.

3) The huge order to buy makes other buyers think the price is about to increase significantly, so they immediately buy at the Spoofer's higher price even though they would otherwise prefer to wait for a lower one.

4) Spoofer immediately cancels their large order to buy before anyone takes it.

5) Spoofer waits awhile and then goes back to 1), but reverses the buy/sell orders so they can capture an illicit profit.

[blancheneige]

>3) The huge order to buy makes other buyers think the price is about to increase significantly, so they immediately buy at the Spoofer's higher price even though they would otherwise prefer to wait for a lower one.

Wait a minute, how did we go from "facilitating the efficient exchange of assets" to "making it easier for speculator to gamble based on what other speculators are doing"?

edit: If anything, spoofing should be allowed to make the price discovery more efficient. For traders wouldn't trade as much based on what other traders are doing hoping to squeeze a short profit. Rather, if they really want in, they will get in with a market or fill-or-kill order at their desired price, period. And it will instantaneously snatch the lowest ask and go deeper into the order book if they want to allow slippage and get a bigger size as well. This would restrain all kinds of quick buck momentum trading and whatnot which only serve to increase the noise around the price and are purely speculative in nature.

[1e-9]

A few points:

1) I wasn't narrowing the discussion to speculators. Spoofing hurts all valid market participants.

2) Speculation does not imply gambling, although that is a common misperception. Speculation is merely placing an order in the direction of an anticipated future price move. It oftentimes counters the current price trend. Informed speculators make trades because they understand something about the market that many others do not. Bringing this information to bear on prices is beneficial to the price discovery process. Informed speculation adds stability and accuracy to pricing. Uninformed speculators are gamblers. They are often harmful to markets and they tend to not last long due to losses.

3) Reacting to perceived near-term supply and demand is not gambling. Are you a gambler if you wait for a buyer willing to buy your house at the price you think is fair? What if someone lies to you saying that the supply of homes like yours is much higher than reality and this information causes you to accept a lower-than-fair price? Would you consider that beneficial to your selling process?

4) You seem to be arguing that the price you want should not be affected by the true prices that others want. Nobody knows enough to price every asset accurately. The markets pool information from many sources to provide this service. Allowing false information is counter to the process.

[erik_seaberg]

If Burger King puts up a "5¢ Whoppers Today" sign but takes it down when you reach the door, that's not a bluff, that's fraud.

[blancheneige]

>but takes it down when you reach the door

like I said, your market order will be executed before the alleged spoofer can take his down, i.e. there is no way for him to react and cancel his limit order causally, unless you are yourself doing something fishy prior to that market order. so no, the analogy doesn't hold. it really is an insignificant thing outside of HFT which is speculation to the max anyway.

[goatinaboat]

there is no way for him to react and cancel his limit order

Yes there is http://barclaysdfslastlooksettlement.com/

[erik_seaberg]

As I understand it, institutions are fleeing to dark pools because they can't trust the regular markets to stand behind the offered prices and actually execute orders.

[tigershark]

You look at the market depth to get a feel where the market is moving. And spoofing modifies the sizes at certain price levels.

[blancheneige]

This is like saying we'll allow you to play poker but you can't bluff.

[erik_seaberg]

Poker is zero sum. Adversarial. The only way to win is for someone else to lose, so of course we try to sow confusion.

A market is supposed to enable trades that benefit both sides, because otherwise who would dare use it? Selling means I need money and I'd rather have the share price now, buying means you have money and you'd rather have the income in the future, and it doesn't have to be a regrettable mistake for either of us.

[Scoundreller]

Unless you have access to an observer account that lets you see all the hole cards:

https://upswingpoker.com/ultimate-bet-absolute-poker-scandal...