5 ms·

Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various

by abduhl 6y ago

Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons. Commodities markets are underpinned by the idea of real price discovery happening: supply meeting demand at an agreeable price. Fake supply or demand undercuts this goal. Algorithmic traders just happen to be the ones taken advantage of here because they move fastest. If there were no algorithmic traders and everything was done manually the distortion in the market would still exist. An imperfect analogy: imagine you go out to the gas station to buy gas and see that there is a line of cars at the gas station charging $2.00/gal but there is no line of cars at the gas station charging $2.01/gal. You go to the $2.01/gal gas station, because you see that there's huge demand and you need gas now. As you drive back, you pass all of the $2.00/gal cars and realize they are all empty. You've been cheated by spoofing. Whether this is paternalistic or not is up for debate.

uzakov 6y ago
>Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons. Commodities markets are underpinned by the idea of real price discovery happening: supply meeting demand at an agreeable price. Fake supply or demand undercuts this goal. Does this logic apply to non-financial field? If someone (person X) creates a fake demand for a SaaS service Y and company Z builds service Y, should X pay money because Z decided to build Y, without a written contract between X and Z?
- yellowstuff 6y ago
  I don't think that line of thinking will get you very far. You can pick up the ball and run with it in American football but not soccer. You can insider trade in US commodity markets but not US equity markets. Spoofing is illegal in US equity markets because that was the result of the rule-making process. I'd argue that banning spoofing is a good rule for equity markets, but it's not necessarily a good rule in other contexts.
  - uzakov 6y ago
    That is exactly my point, see parent comment - "Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons." banning spoofing in different markets/fields isn't necessarily a good thing.
- bleepblorp 6y ago
  This will vary between jurisdictions but my understanding is that, yes, you can be sued for making a false promise to buy from a specific seller even if you don't get to the stage of a formal contract. Putting out a press release, or RFP, saying 'we want to buy X quantity of Y' without the intent to follow up isn't illegal. However, getting to the point of a handshake agreement with a specific vendor but then backing out means that you will be expected to pay compensation even though no formal contract was signed.
  - uzakov 6y ago
    >"This will vary between jurisdictions but my understanding is that, yes, you can be sued for making a false promise to buy from a specific seller even if you don't get to the stage of a formal contract." Absolutely but simply stating interest or saying "We want to buy X quantity of Y", without having any agreement with a company or stating company name isn't agreeing to purchase nor should be seen (except certain situations) as bad
- gpderetta 6y ago
  I follow a bit the Magic the Gathering trading market (but stay away from it myself): being unregulated spoofing, market manipulation and insider trading are rampant and blatant. Also it is not a very efficient market, so the effects linger for a long time affecting people that just want to buy the cards to play.
  - uzakov 6y ago
    I unfortunately do not know much about the Magic the Gathering but from I read online you collect cards and they vary in terms of power. Is it in some ways similar to Hearthstone? If yoy want to buy the cards to play, are you affected by the unregulated spoofing, market manipulation? Are you allowed to print your own?
    - gpderetta 6y ago
      It is similar (well, except that it precedes Hearthstone by a decade or two). Also Hearthstone is digital only, while Magic is played both in paper and on a couple of digital platforms. There is a thriving second hand market (both paper and digital) with prices going from a few cents (or less) for bulk commons to ten of thousands for first edition power 9. The cheapest (but still very expensive) way to play the game is to buy the cards you need on the market instead of opening up packs and hoping to find what you need. Speculators are known to buy up less liquid (printing of) cards to simulate demand, then unload them when the price is up. Not all (or even most) price spikes are due to speculators of course. Also there are often spikes of certain older cards before new sets are released which happen to contain new cards that work well these old cards, suggesting that insiders of Wizard of the Coast or retailers are leaking and/or trading on non public information. You can't print your own cards to participate in sanctioned tournaments, but of course, when playing with friends you can do whatever your playgroup allows.
      - uzakov 6y ago
        Thanks for providing a good overview! > Also there are often spikes of certain older cards before new sets are released which happen to contain new cards that work well these old cards, suggesting that insiders of Wizard of the Coast or retailers are leaking and/or trading on non public information. This obviously sucks > You can't print your own cards to participate in sanctioned tournaments, but of course, when playing with friends you can do whatever your playgroup allows. If you are a casual player, planning to play with friends only, are you actually hurt in any way by the speculators?
lostmsu 6y ago
Would not requiring every order to have validity duration attached (and not cancelable) be a better solution, than creating legal limitations, that can not be automated?
- abduhl 6y ago
  There are plenty of times when someone puts in an order with every intent to enter the position (i.e. - not to spoof) where something makes them change their mind and kill their order. Why would we punish the sincere actor who changes their mind rather than go directly after the fraudster? "Better to let 10 guilty go free" and all.
  - lostmsu 6y ago
    Why is it punishing? It is just a rule, and you'd know in advance you have to abide by it when placing your order. If you think it is risky, do not place your order in the first place.
    - Traster 6y ago
      It reduces liquidity in the market. If I can enter an order in a market and cancel it when I want then I can enter it at my fair value. If I know that once I enter the order I must wait 5 minutes before cancelling then I need to consider how far the market can move against me in those 5 minutes and adjust my price to account for that risk. So I would have to put in an order for a considerably worse price. This means that anyone who wants to trade against me has to pay the premium. I would also likely put in a smaller order to limit my risk exposure. This results in a wider market that is less liquid, meaning the people who want to trade in this market will be paying a higher premium for their trades.
      - lostmsu 6y ago
        > how far the market can move against me in those 5 minutes and adjust my price to account for that risk. So I would have to put in an order for a considerably worse price I lost you here probably due to my unfamiliarity with some financial instruments. I am only aware of two types of an order: market and limit. The first one is unaffected for obvious reason. In case of a limit order, let's say you are trying to sell. You think fair price is X, while currently market only offers (X-a). So you put limit sell order at X. What do you mean in this situation by "market moves against me"? The price goes further down? If that is the correct interpretation, when putting your order you actually have to reduce the limit price in order to increase the chances of your order to succeed, thereby increasing liquidity.
trappist 6y ago
It only succeeds at manipulation, for the most part, because of assumptions created by the prohibition that the apparent liquidity is genuine liquidity. I trade crypto on unregulated exchanges where spoofing is such a familiar phenomenon that traders and their algorithms assign little or no meaning to it, and it has no observable effect. The prohibition is what makes it work.
- abduhl 6y ago
  But the point of the commodities market is, at its core, for hedging, not speculation. The point of the crypto market is, at its core, speculation. Many will disagree with this assertion, but it's true. You grow wheat. You want to make sure that you can get $X for your wheat in 6 months and you are willing to risk the upside of a wheat shortage for protection against the downside of a wheat glut. Your counterparty makes bread. They're willing to lock in a price of $X now for wheat delivered in 6 months at the inverse cost of your reasoning. You've both hedged. The world is better because I can buy bread made from wheat in 6 months at a reasonable price. Traders and Wall Street came along and perverted this, but it is still a primary purpose of the market at its bedrock. If the bakers and the farmers disappear, there is no wheat market for the traders to pervert. It is the foundational hedger that the prohibition protects. Compare: you trade crypto. You want to sell your crypto for dollars. Later, you want to buy your crypto for dollars. When the hell does anyone else care about your crypto? Why would we care about the integrity of price discovery in the crypto market when it has (or should have) no impact on the real world outside of your economic gains/losses? If we don't care about price discovery and its integrity, we have no need for the prohibition.
  - raziel2701 6y ago
    I think the commodities market is by far used for speculation. Same with options, supposed to be an insurance policy for portfolios, it's now a vehicle for speculation. Thinking that at its core it's for hedging is a very naive position. All you have to do is look at the volume of transactions and you'll realize that most activity is purely speculative.

by abduhl 6y ago

uzakov 6y ago

>Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons. Commodities markets are underpinned by the idea of real price discovery happening: supply meeting demand at an agreeable price. Fake supply or demand undercuts this goal. Does this logic apply to non-financial field? If someone (person X) creates a fake demand for a SaaS service Y and company Z builds service Y, should X pay money because Z decided to build Y, without a written contract between X and Z?

yellowstuff 6y ago
I don't think that line of thinking will get you very far. You can pick up the ball and run with it in American football but not soccer. You can insider trade in US commodity markets but not US equity markets. Spoofing is illegal in US equity markets because that was the result of the rule-making process. I'd argue that banning spoofing is a good rule for equity markets, but it's not necessarily a good rule in other contexts.
- uzakov 6y ago
  That is exactly my point, see parent comment - "Spoofing distorts the market by making it appear that there is much more liquidity and demand or supply. Distorted markets are, theoretically, bad for various reasons." banning spoofing in different markets/fields isn't necessarily a good thing.
bleepblorp 6y ago
This will vary between jurisdictions but my understanding is that, yes, you can be sued for making a false promise to buy from a specific seller even if you don't get to the stage of a formal contract. Putting out a press release, or RFP, saying 'we want to buy X quantity of Y' without the intent to follow up isn't illegal. However, getting to the point of a handshake agreement with a specific vendor but then backing out means that you will be expected to pay compensation even though no formal contract was signed.
- uzakov 6y ago
  >"This will vary between jurisdictions but my understanding is that, yes, you can be sued for making a false promise to buy from a specific seller even if you don't get to the stage of a formal contract." Absolutely but simply stating interest or saying "We want to buy X quantity of Y", without having any agreement with a company or stating company name isn't agreeing to purchase nor should be seen (except certain situations) as bad
gpderetta 6y ago
I follow a bit the Magic the Gathering trading market (but stay away from it myself): being unregulated spoofing, market manipulation and insider trading are rampant and blatant. Also it is not a very efficient market, so the effects linger for a long time affecting people that just want to buy the cards to play.
- uzakov 6y ago
  I unfortunately do not know much about the Magic the Gathering but from I read online you collect cards and they vary in terms of power. Is it in some ways similar to Hearthstone? If yoy want to buy the cards to play, are you affected by the unregulated spoofing, market manipulation? Are you allowed to print your own?
  - gpderetta 6y ago
    It is similar (well, except that it precedes Hearthstone by a decade or two). Also Hearthstone is digital only, while Magic is played both in paper and on a couple of digital platforms. There is a thriving second hand market (both paper and digital) with prices going from a few cents (or less) for bulk commons to ten of thousands for first edition power 9. The cheapest (but still very expensive) way to play the game is to buy the cards you need on the market instead of opening up packs and hoping to find what you need. Speculators are known to buy up less liquid (printing of) cards to simulate demand, then unload them when the price is up. Not all (or even most) price spikes are due to speculators of course. Also there are often spikes of certain older cards before new sets are released which happen to contain new cards that work well these old cards, suggesting that insiders of Wizard of the Coast or retailers are leaking and/or trading on non public information. You can't print your own cards to participate in sanctioned tournaments, but of course, when playing with friends you can do whatever your playgroup allows.
    - uzakov 6y ago
      Thanks for providing a good overview! > Also there are often spikes of certain older cards before new sets are released which happen to contain new cards that work well these old cards, suggesting that insiders of Wizard of the Coast or retailers are leaking and/or trading on non public information. This obviously sucks > You can't print your own cards to participate in sanctioned tournaments, but of course, when playing with friends you can do whatever your playgroup allows. If you are a casual player, planning to play with friends only, are you actually hurt in any way by the speculators?

lostmsu 6y ago

Would not requiring every order to have validity duration attached (and not cancelable) be a better solution, than creating legal limitations, that can not be automated?

abduhl 6y ago
There are plenty of times when someone puts in an order with every intent to enter the position (i.e. - not to spoof) where something makes them change their mind and kill their order. Why would we punish the sincere actor who changes their mind rather than go directly after the fraudster? "Better to let 10 guilty go free" and all.
- lostmsu 6y ago
  Why is it punishing? It is just a rule, and you'd know in advance you have to abide by it when placing your order. If you think it is risky, do not place your order in the first place.
  - Traster 6y ago
    It reduces liquidity in the market. If I can enter an order in a market and cancel it when I want then I can enter it at my fair value. If I know that once I enter the order I must wait 5 minutes before cancelling then I need to consider how far the market can move against me in those 5 minutes and adjust my price to account for that risk. So I would have to put in an order for a considerably worse price. This means that anyone who wants to trade against me has to pay the premium. I would also likely put in a smaller order to limit my risk exposure. This results in a wider market that is less liquid, meaning the people who want to trade in this market will be paying a higher premium for their trades.
    - lostmsu 6y ago
      > how far the market can move against me in those 5 minutes and adjust my price to account for that risk. So I would have to put in an order for a considerably worse price I lost you here probably due to my unfamiliarity with some financial instruments. I am only aware of two types of an order: market and limit. The first one is unaffected for obvious reason. In case of a limit order, let's say you are trying to sell. You think fair price is X, while currently market only offers (X-a). So you put limit sell order at X. What do you mean in this situation by "market moves against me"? The price goes further down? If that is the correct interpretation, when putting your order you actually have to reduce the limit price in order to increase the chances of your order to succeed, thereby increasing liquidity.

trappist 6y ago

It only succeeds at manipulation, for the most part, because of assumptions created by the prohibition that the apparent liquidity is genuine liquidity. I trade crypto on unregulated exchanges where spoofing is such a familiar phenomenon that traders and their algorithms assign little or no meaning to it, and it has no observable effect. The prohibition is what makes it work.

abduhl 6y ago
But the point of the commodities market is, at its core, for hedging, not speculation. The point of the crypto market is, at its core, speculation. Many will disagree with this assertion, but it's true. You grow wheat. You want to make sure that you can get $X for your wheat in 6 months and you are willing to risk the upside of a wheat shortage for protection against the downside of a wheat glut. Your counterparty makes bread. They're willing to lock in a price of $X now for wheat delivered in 6 months at the inverse cost of your reasoning. You've both hedged. The world is better because I can buy bread made from wheat in 6 months at a reasonable price. Traders and Wall Street came along and perverted this, but it is still a primary purpose of the market at its bedrock. If the bakers and the farmers disappear, there is no wheat market for the traders to pervert. It is the foundational hedger that the prohibition protects. Compare: you trade crypto. You want to sell your crypto for dollars. Later, you want to buy your crypto for dollars. When the hell does anyone else care about your crypto? Why would we care about the integrity of price discovery in the crypto market when it has (or should have) no impact on the real world outside of your economic gains/losses? If we don't care about price discovery and its integrity, we have no need for the prohibition.
- raziel2701 6y ago
  I think the commodities market is by far used for speculation. Same with options, supposed to be an insurance policy for portfolios, it's now a vehicle for speculation. Thinking that at its core it's for hedging is a very naive position. All you have to do is look at the volume of transactions and you'll realize that most activity is purely speculative.