Re:Why Is Spoofing Bad?
by lordnacho on Thursday April 23, 2015 @09:01AM
(#9426351)
Good points in that article. He's spot on about the fundamental players; they want the market to be inefficient so they can make up the difference when it goes to the right value, and they don't want to leak their decisions that they've paid a lot of money to come to.
To add complexity, it's not necessarily the case that someone who almost never trades is spoofing, or that they don't want to trade. Consider a simple strategy: I am willing to offer GE shares at 20.00 if the the wider index is trading at 100. In fact because there's some sort of relationship (real or imagined) I'm happy to sell as long as I get more than 1/5 of the index price for my GE shares. I'm also willing to buy on a similar ratio.
Now every time someone trades some other share, the index will move. And I will have to move my price.
The thing with spoofing is a spoofer doesn't want to trade. They just want to raise until everyone else folds. Just like in poker, it creates noise in the market. How exactly you prove that is hard to say.
Another thing, related to manipulation: you can move the market by actually trading as well. Especially if you're a big guy. I can't count the number of times (normally around expiry) when the index has moved unnaturally only to come right back. I think guys are getting done for this now, and it's about time.
To add complexity, it's not necessarily the case that someone who almost never trades is spoofing, or that they don't want to trade. Consider a simple strategy: I am willing to offer GE shares at 20.00 if the the wider index is trading at 100. In fact because there's some sort of relationship (real or imagined) I'm happy to sell as long as I get more than 1/5 of the index price for my GE shares. I'm also willing to buy on a similar ratio.
Now every time someone trades some other share, the index will move. And I will have to move my price.
The thing with spoofing is a spoofer doesn't want to trade. They just want to raise until everyone else folds. Just like in poker, it creates noise in the market. How exactly you prove that is hard to say.
Another thing, related to manipulation: you can move the market by actually trading as well. Especially if you're a big guy. I can't count the number of times (normally around expiry) when the index has moved unnaturally only to come right back. I think guys are getting done for this now, and it's about time.