I don't think it's fair that people can make money from having 'perfect' knowledge of the market. I don't buy into the efficient market hypothesis.

I can point out many significant inefficiencies in the system - E.g. Nepotism (allocating employee rank and pay based on social connections instead of skills/results), executive bonus structures which favor short-term gains over long-term gains, monopolies which make companies complacent and employees less productive, other anti-competitive behaviours - These factors allow large, inefficient companies to beat competitors in the market in spite of significant internal inefficiencies.

Anti-competitive behaviour will probably always exist in the markets; it's part of human nature and it's basically universally accepted except in the most extreme cases (E.g. antitrust cases).

Maybe if humans become smarter and more psychopathic (like in the novel 'Atlas Shrugged'), then we could have an efficient market, but right now, I think it's very far from efficient.

Maybe it's efficient on a human psychological level (from the perspective of an average trader/investor) in that there is some sort of universal consensus about the value of everything. The problem is that this consensus is not rooted in reality but on a superficial, socially-constructed representation of it - That means it's not necessarily efficient in terms of maximizing the output of companies and the happiness of their customers.

> I don't think it's fair that people can make money from having 'perfect' knowledge of the market. I don't buy into the efficient market hypothesis.

These two statements don't seem related. And I don't understand the first one anyway. Where does "fairness" come in? It doesn't seem unreasonable to me that one person who has perfect knowledge about a financial market would be able to make money that someone who doesn't have perfect knowledge wouldn't. And it seems quite "fair" to me that this would be so; why should the person with better knowledge not be able to benefit from their better knowledge?

shouldn't a spoofer's action just be an opportunity for someone who has said knowledge to exploit the spoofter's enhanced liquidity?

Well, I'm not really sure how exactly to exploit this (I'm not a trader, all I really know about this is what I've read in all of the previous discussions about this), but that's really besides the point, because nobody has perfect information. In any case, I suspect the only real way to take advantage of this situation is to determine the orders that the spoofer actually does intend to make (e.g. spoofing to depress the price and then buying low) and making those trades first yourself. But you're not actually harming the spoofer in that case (except in that they didn't get to make the trade they wanted), because the spoofer won't actually have executed any trades, they'll have simply attempted (and failed) to execute them.

Which is to say, if you have perfect knowledge, you might be able to prevent the spoofer from reaping the benefits of their spoofing, but you won't actually have harmed them, and of course the effect on the market is just as bad as if you let the spoofer spoof in peace.

spoofing is largely defined in its relationship to people submitting large orders that they intend to cancel for the purpose of moving the market. so, while the rest of the market thinks there is buying or selling pressure coming from the spoofer's large order, the spoofer has private information that he does not intend to actually trade that large order. he simply wants to move the market towards one of his much smaller orders, and get it filled instead. then, he cancels the large order, and the market in theory should revert back to its old price, because the information that a large order will be moving the market has been taken away. now, what's important is that the spoofer actually has to send a large order. and even if he has no desire or intention of getting it filled, it's still available to be filled. so, if someone thinks a market is going up, but there isn't enough liquidity for him to express his opinion, he could wait for a spoofer to come along to inadvertently provide liquidity with a large offer, and trade with that offer before the spoofer has time to cancel.

What you describe isn't someone taking advantage of the spoofer's intention not to actually trade, though. Or rather, it's not someone who has perfect information using that information to understand that the spoofer's order does not represent actual knowledge. It is, in fact, someone who has limited information and believes the market does not reflect reality, and then using that to place an order that just happens to use the spoofer's order. So in this case, it's no different at all from them trading with a market maker.

Also, I would assume spoofers don't typically place orders in illiquid markets, precisely because they risk having someone use their new order as a source of liquidity. I mean, spoofers don't actually want their orders filled. Plus, the whole point of the spoofed order is to trick market makers into moving their positions, and if the market isn't liquid then clearly there's no market makers (because if there were market makers, then the market would be liquid), and if there's no market makers then spoofing isn't going to work to begin with.