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The algos are not trying to hit the spoof, they are using order book imbalance to modify their valuation. So the way it would work is that JPM could for example
by smabie 5y ago
The algos are not trying to hit the spoof, they are using order book imbalance to modify their valuation. So the way it would work is that JPM could for example post a large spoof bid to trick the algos into aggressing into a JPM offer.
- dudeinjapan 5y agoYes, because the algos are being faked-out by the spoof. It's like being juked in basketball... if the algos were smart, they'd hit the spoof bid.
- cromka 5y ago> if the algos were smart Algos aren't smart. Thy automate human reasoning to the extent logically possible. If as a human you don't know how to detect a spoofed bid, then how do you make algorithm "smarter" than yourself?
- dudeinjapan 5y agoIf the algos aren't smart, then you may wish to rethink trading real money with them. The orderbook imbalance signal is a strong signal, but its not the only one... (Full disclaimer: I worked as an algo quant at a large bank for 5 years. During which time I was constantly hounded by Compliance over supposed "spoofing", which we never did.)
- smabie 5y agoNo they would not do this. Why would they want to hit the spoof bid?
- dudeinjapan 5y agoOne should seek to determine the theoretical price (i.e. "true" price) of an asset. If the spoof bid is above the theoretical price, then you hit it. The spoof bid is noise... find the signal and make the spoofers pay dearly.
- smabie 5y agoOh sure yeah but it's unlikely spoof bid would be above theo.. too risky on the part of the spoofer
- dudeinjapan 5y agoThen its not really a spoof is it? They'd be happy to trade it :)