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Is Spoofing alive and well?

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tpredictor View Post
Spoofing or fake liquidity is a factor in the markets. From my experience, it is most used during low volume periods when institutions want to get long when the runup is too fast such as in overnight markets. For example, they will post a big size on the sell side, scare the market, and then buy it up. This is most prevalent during the start of strong trends.
During the day, most institutions will hide their full liquidity.

Thanks for the post. The thing is, we both seem to know that spoofing does take place in most markets, and it's not just an occasional occurrence.

Why is it then that the CFTC ignores it? Sure, it made a poor lone trader such as Nav Sarao pay because he was spoofing all over, but this doesn't seem to have stopped everyone else doing it, does it?

Something they will do or used to do in the ES is recycle the order flow at market tops (and sometimes bottoms). They do this by constantly running stops while supporting the market within a certain trading range.

Yes, I figured as much

My sense though is that focusing on individual order flow events is not as productive as trying to understand the overall context.

I don't disagree. But I am curious by nature and so I asked.

It is possible to determine if liquidity was spoofed simply by tracking the orders that trade at a level compared to the depth that was at the level. If less orders are required to trade through that level then most likely it was spoofed. Although, there are certain cases when this might not be true such as when traders go to market and pull their resting orders. Some high frequency traders may also have strategies that are based on their position in the book. They may not be spoofing to fool other traders but they pull their orders when the resting depth below them drops below a certain level.

Well, my definition of spoofing assumes a basic level of understanding of order flow reading ability. So when I say 'spoofing' I am assuming we talk about a situation where a larger than usual resting set of orders is, say, 2-3 ticks above where price is being traded, and immediately decreases when price goes closer, and at the same time immediately increases back to the original level when price retraces back.

So price doesn't even have the chance of hitting that level - unless someone wants to 'punish' the spoofer and sends a burst of orders that will catch them out. Seen it happen.

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