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There's a technical answer, but more simply, you answered your own question: you can't push your chips in and then yank them back. Try that at a poker table -

There's a technical answer, but more simply, you answered your own question: you can't push your chips in and then yank them back. Try that at a poker table - yes, you'll "outsmart" the other players by being able to see their reaction. You'll also instantly break the integrity of the game, because you're not outsmarting them, you're breaking the rules that allow the game/market to actually function. For a market to function properly that integrity that an order on the books is in good faith is vital. Of course, it's up to the SEC to enforce that.

ryandvm 11y ago
I think he was making the point that if something is permitted by the "rules of the game", then by definition, it cannot be a violation of the rules. And in the case of financial transactions APIs, the rules should exist as application logic. So if you're not supposed to place and immediately cancel an order, it should simply not be possible. I could certainly believe that if it was one of the large HFTs doing this, they would have had the necessary wheel-grease to not get in trouble...
- kasey_junk 11y ago
  Placing and immediately canceling an order is fine and allowed (though doing that too much is penalized for other reasons). Spoofing is pulling them out in a coordinated fashion before they can be put at risk with no intention of them ever trading. The problem is that an api that prevented that would also prevent legitimate cancels that would have side effects that could be bad (ie making it riskier to make markets and therefore increase the bid/ask spread). Spoofing is about intention. Intention cannot be determined by algorithm (yet). Also to your point about a big HFT not being subject to this. Allston trading is a large HFT market maker that is currently in arbitration over spoofing.
tptacek 11y ago
You can totally push your chips in and yank them back. What you can't do is pretend to push your chips in, such that it is almost impossible to ever lose them, to bluff other players without taking any meaningful risk.
- Dylan16807 11y ago
  And these were real orders with real risk, so...
  - kasey_junk 11y ago
    So we only have a pattern of behavior and any communications about said behavior to determine intent.
loup-vaillant 11y ago
But but but, how come it is even possible to yank your chips back? It would be so easy to force those orders to stay for a minimum amount of time.
- kasey_junk 11y ago
  That wouldn't prevent spoofing. Lots of spoofers put orders in over the course of a long time. Its when/why they pull them out in coordinated fashion that the intention becomes clear.
  - loup-vaillant 11y ago
    Still: if someone tries to buy an order, the transaction is automatically accepted, and the seller can do nothing about it. Right? Right? Don't tell me one can withdraw an order after it has been established that someone else is trying to buy it? That would be way too easy to abuse. "Oh, someone actually wants my stuff? Sorry, I just happened to change my mind."
    - kasey_junk 11y ago
      No you can't do that. Spoofing is really nuanced and analogies make it difficult. Usually spoofers will put orders in the back of the order book where they feel they can cancel them before anyone can realistically get to them. But they are in the order book, so they are "technically" at risk of being fulfilled. Thats why intent is so important.

ryandvm 11y ago

I think he was making the point that if something is permitted by the "rules of the game", then by definition, it cannot be a violation of the rules. And in the case of financial transactions APIs, the rules should exist as application logic. So if you're not supposed to place and immediately cancel an order, it should simply not be possible. I could certainly believe that if it was one of the large HFTs doing this, they would have had the necessary wheel-grease to not get in trouble...

kasey_junk 11y ago
Placing and immediately canceling an order is fine and allowed (though doing that too much is penalized for other reasons). Spoofing is pulling them out in a coordinated fashion before they can be put at risk with no intention of them ever trading. The problem is that an api that prevented that would also prevent legitimate cancels that would have side effects that could be bad (ie making it riskier to make markets and therefore increase the bid/ask spread). Spoofing is about intention. Intention cannot be determined by algorithm (yet). Also to your point about a big HFT not being subject to this. Allston trading is a large HFT market maker that is currently in arbitration over spoofing.

tptacek 11y ago

You can totally push your chips in and yank them back. What you can't do is pretend to push your chips in, such that it is almost impossible to ever lose them, to bluff other players without taking any meaningful risk.

Dylan16807 11y ago
And these were real orders with real risk, so...
- kasey_junk 11y ago
  So we only have a pattern of behavior and any communications about said behavior to determine intent.

loup-vaillant 11y ago

But but but, how come it is even possible to yank your chips back? It would be so easy to force those orders to stay for a minimum amount of time.

kasey_junk 11y ago
That wouldn't prevent spoofing. Lots of spoofers put orders in over the course of a long time. Its when/why they pull them out in coordinated fashion that the intention becomes clear.
- loup-vaillant 11y ago
  Still: if someone tries to buy an order, the transaction is automatically accepted, and the seller can do nothing about it. Right? Right? Don't tell me one can withdraw an order after it has been established that someone else is trying to buy it? That would be way too easy to abuse. "Oh, someone actually wants my stuff? Sorry, I just happened to change my mind."
  - kasey_junk 11y ago
    No you can't do that. Spoofing is really nuanced and analogies make it difficult. Usually spoofers will put orders in the back of the order book where they feel they can cancel them before anyone can realistically get to them. But they are in the order book, so they are "technically" at risk of being fulfilled. Thats why intent is so important.