|
|
|
|
|
|
by 1e-9
2496 days ago
|
|
|
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. |
|
|
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".