[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.

[blancheneige]

>Speculation is merely placing an order in the direction of an anticipated future price move.

For the purpose of making a profit. If gambling doesn't sound like the right term then sure, call it speculation. But a skilled trader is no different than a skilled poker player.

>Informed speculators make trades because they understand something about the market that many others do not.

They think they understand. Hence the gambling part, for it is entirely probabilistic in nature. Further, are you referring to the market as given by its technicals or its fundamentals? In the latter case, the state of the order book should have no immediate bearing on that perception, as the order book should be a causal reflection of the asset's fundamentals. In the former case, if that perception is partially derived from the order book itself, then we are back to probabilistic inference, hence gambling.

>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?

No, I would look at the price of houses available right now, just like a trader who means to buy now looks at what the best available ask is. The difference is in trading you can execute nearly immediately, neutering the effect of a spoofed ask removed causally as a result of buying intent.

>You seem to be arguing that the price you want should not be affected by the true prices that others want.

The "true" price that others want right now is the last quoted bid/ask that can be immediately sold/bought into. And that one can't be "spoofed" without the risk of someone actually market selling into it before it has a chance to be cancelled, hence making it reliable.

Again, if you rely on the buy side of the order book to make a decision, then you are using a technical indicator, which you'd hypothesize is derived from fundamentals, rather than using your supposed superior understanding of fundamentals (external to the market) to better price the market (internal adjustment).