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Why exactly is spoofing illegal? How do you differentiate legitimate order canceling from spoofing? Trading is very emotional process. You place order, 5 minute

Why exactly is spoofing illegal? How do you differentiate legitimate order canceling from spoofing? Trading is very emotional process. You place order, 5 minutes later you decide to cancel it, 10 minutes later you decide to place another order. I think it doesn't make any sense for this kind of activity to be illegal, and I don't see much wrong with it. It would be impossible for exchanges to differentiate between spoofing or legitimate trading anyway.

troydavis 9y ago
Matt Levine wrote about possible reasons, and whether they're actually beneficial, here: https://www.bloomberg.com/view/articles/2015-04-22/why-is-spoofing-bad- https://www.bloomberg.com/view/articles/2015-04-22/why-is-sp...
vbo 9y ago
I would assume 5 minutes is ok; do it within seconds or fractions of seconds and it becomes an issue. Bots (and a few eagle eyed traders) see the signal and start buying, you withdraw the order with very little of it having been filled, and have potentially jump-started a price spike. You then sell, wait a bit, repeat. You're conning people into thinking you're about to buy and when they get excited, you turn around and start selling.
- TomMarius 9y ago
  Perhaps people should stop speculating if they can't even think of this.
revmoo 9y ago
I agree. If you play the game better than others why should that be ilegal? I understand the argument that it harms the normal process of price discovery, bit I don't think that making certain inputs to a system should ever be subjectively evaluated into a crime.
mrchicity 9y ago
Intent. How do you differentiate hacking from legitimate access? You're just sending byte streams to the server and it decided to give you access to something, after all. The reason it's illegal or banned on normal exchanges is because it drives out legitimate customers and you end up with a den of thieves. Everybody looks at the order book to gauge liquidity and make decisions, not just bots. Users want prices to be relatively stable and tied to fundamental values. An exchange where manipulators spoof or wipe the order book in a high stakes game of chicken is unstable. Imagine an eBay with no protections against counterfeit goods, or a StubHub full of fraudulent tickets. And spoofing is very easy for regulators to detect. The behaviors of market makers, who also cancel many orders, and spoofers, could not be more different. Market makers place orders for small symmetric size on both sides of the book. If they quote asymmetric sizes, they quote smaller bids when they're long, or smaller offers when short. They cancel bids after they buy, offers after they sell. Spoofers do the exact opposite. They place asymmetric sizes where one side makes up a large amount of liquidity. They place big size on the same side when long or short to press their trades favorably. They cancel buys after they sell, and sells after they buy.

troydavis 9y ago

Matt Levine wrote about possible reasons, and whether they're actually beneficial, here: https://www.bloomberg.com/view/articles/2015-04-22/why-is-spoofing-bad- https://www.bloomberg.com/view/articles/2015-04-22/why-is-sp...

vbo 9y ago

I would assume 5 minutes is ok; do it within seconds or fractions of seconds and it becomes an issue. Bots (and a few eagle eyed traders) see the signal and start buying, you withdraw the order with very little of it having been filled, and have potentially jump-started a price spike. You then sell, wait a bit, repeat. You're conning people into thinking you're about to buy and when they get excited, you turn around and start selling.

TomMarius 9y ago
Perhaps people should stop speculating if they can't even think of this.

revmoo 9y ago

I agree. If you play the game better than others why should that be ilegal? I understand the argument that it harms the normal process of price discovery, bit I don't think that making certain inputs to a system should ever be subjectively evaluated into a crime.

mrchicity 9y ago

Intent. How do you differentiate hacking from legitimate access? You're just sending byte streams to the server and it decided to give you access to something, after all. The reason it's illegal or banned on normal exchanges is because it drives out legitimate customers and you end up with a den of thieves. Everybody looks at the order book to gauge liquidity and make decisions, not just bots. Users want prices to be relatively stable and tied to fundamental values. An exchange where manipulators spoof or wipe the order book in a high stakes game of chicken is unstable. Imagine an eBay with no protections against counterfeit goods, or a StubHub full of fraudulent tickets. And spoofing is very easy for regulators to detect. The behaviors of market makers, who also cancel many orders, and spoofers, could not be more different. Market makers place orders for small symmetric size on both sides of the book. If they quote asymmetric sizes, they quote smaller bids when they're long, or smaller offers when short. They cancel bids after they buy, offers after they sell. Spoofers do the exact opposite. They place asymmetric sizes where one side makes up a large amount of liquidity. They place big size on the same side when long or short to press their trades favorably. They cancel buys after they sell, and sells after they buy.