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Is Spoofing alive and well?

  #7 (permalink)

Trading Experience: Intermediate
Platform: NinjaTrader & Jigsaw
Broker/Data: Rithmic
Favorite Futures: ZB UB
Posts: 143 since Dec 2016

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.

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

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.

Precisely this happened in the overnight session on ZB two days ago. Traded in a range the entire Asian session, then it got up to the top before London open, but just outside of the range there was an order to sell 1000. Sure enough right at 12 pacific time 700 orders come off the sell and hit the market. That trend continued for almost an entire point over night....

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