In the finance world, you may have come across the term “spoofing,” but a great number is still unaware of its true meaning.
Now, what is spoofing you may ask? Today, we’ll take a dive into the underbelly of the financial world.
What is Spoofing?
Spoofing is a method of abusing financial markets through the placement of fake buy-sell orders. Spoofing involves cheating markets to manipulate asset prices and is found in both stocks or cryptocurrency markets. When prices are at a satisfying point, scammers would enter-exit the market while cancelling their previous orders, potentially damaging other investors’ orders.
Spoofing relies on creating fake orders, therefore fake demand can also be orchestrated as well, through consecutive or large amounts of related orders. When approaching the desired price point, spoofers would cancel all of their previous orders, leading prices to return to normality and leaving many other investors stranded in the market.
Response to Spoofing
Investors are often found to be affected by fake orders, making spoofing a highly effective scheme for scammers to employ, especially when their price points are strategically placed along support-resistance lines.
As a result, spoofing can still be frequently seen used in accordance with underlying market instruments, for instance, spoofed orders can be found in bond markets, potentially affecting spot markets of identical assets.
The spoofing method can be increasingly harmful during market fluctuations as they can be highly influential towards market trajectories and increased rates of risk for investors. Nonetheless, numerous factors are involved in this process.
Is Spoofing Illegal?
In the U.S., spoofing is considered illegal and monitored by the U.S. Commodity Futures Trading Commission (CTFC). In the U.K., spoofing-related activities are looked over by the Financial Conduct Authority (FCA). The FCA is effectively able to fine scammers and organizations for such violations.
Across the globe, numerous countries employ the help of various institutions to be vigilant of the ongoing activities in financial markets.
Negative effect on the market
The most noticeable impact spoofing has is immediate influence on asset prices. Faking orders and keeping up with the market is relatively easy to accomplish, hence the establishment of various organizations and institutions to monitor such activities. Moreover, the price abuse can lead investors to become less confident in various coins, stocks or projects.
Spoofing is a method scammers employ involving fake buy-sell orders, rendering real transactions absent. In general, spoofing is performed by algorithms and automated bots to aid their efforts in tweaking the market and changing the demand-supply found in them. Currently, leading countries, such as the U.S. and U.K. are currently monitoring such illegal activities in their financial markets, while also suppressing them as well.
Nonetheless, every investment is a risk, investors are highly advised to conduct their research and develop their understanding before investing to both reduce damaging impacts and create suitable investment and risk management strategies.