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Spoofing becoming illegal
- Thread starter TraDaToR
- Start date
Nice link TraDaTor but as I mentioned previously, I don't see why it is such a terrible practice that needs to be outlawed. Spoofing is a replicable pattern in the markets I and many other people make money from. If people fall for it then adapt and survive. If you are a spoofer yourself (and I work with a couple of guys big enough to actually fall in to that camp) they will occasionally get filled on an order that they dont actually want. Nobody wants 2000 bunds or 300 gold contracts they don't actually want and they have to wear the loss.
The new form of spoofing, absolutely illegal and unethical and destructive, is the automated wash trade. An HFT firm like Jump may have two "separate" strategies with conveniently different views on a market each day. One is Buying and one is Selling. They crowd others out of the stack then "trade" with each other in directional moves to collect against proximate, and even distant, stops. Then, they "trade" back to the starting point. It's estimated more than one-half of CME trading volume is wash trade volume. It's destroying the CME. CME are not truly trying to root this out because CME are in business with these "liquidity providers." They say "Jump tells us its two strats don't talk to each other." The lame attempts to spot spoofing do not see the price jumps associated with withdrawn Bids or Offers, rather with a sudden burst of "trades." So they say "all looks good to me."
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What is the source of your quotes and statistics?
The new form of spoofing, absolutely illegal and unethical and destructive, is the automated wash trade. An HFT firm like Jump may have two "separate" strategies with conveniently different views on a market each day. One is Buying and one is Selling. They crowd others out of the stack then "trade" with each other in directional moves to collect against proximate, and even distant, stops. Then, they "trade" back to the starting point. It's estimated more than one-half of CME trading volume is wash trade volume. It's destroying the CME. CME are not truly trying to root this out because CME are in business with these "liquidity providers." They say "Jump tells us its two strats don't talk to each other." The lame attempts to spot spoofing do not see the price jumps associated with withdrawn Bids or Offers, rather with a sudden burst of "trades." So they say "all looks good to me."
If what you say is true "None Business" then just goes to show how closely aligned the HFT and exchanges are. I remember once I didn't have the setting on TT switched on which stops you from trading with yourself. I must have accidentally done one trade with myself and had risk managers on me instantly telling me to be careful. It sets something off in the operations department. So a whole company doing it hmm.
Although... as far as I am aware it is only illegal if one account trades with itself. If you are on a prop desk/ fund with multiple registered accounts they can in theory trade with each other. For example if I am buying the dax there is every chance someone in the same room as me is selling the dax so the exchange would see trading firm X trading with itself. But I think the trades are cross match at the exchange so have minimal impact on the market, not sure.
Although... as far as I am aware it is only illegal if one account trades with itself. If you are on a prop desk/ fund with multiple registered accounts they can in theory trade with each other. For example if I am buying the dax there is every chance someone in the same room as me is selling the dax so the exchange would see trading firm X trading with itself. But I think the trades are cross match at the exchange so have minimal impact on the market, not sure.
The situation is actually even worse than the lawsuit in that article suggests. There are lulls where a de facto "single" machine (paired strats, one Buying and the other Selling) is making a major CME market. During these intervals, whatever position you put on is met with an instantaneous major gap against, in the tape appearing as a burst of "trades" as opposed to a more classical spoof evacuation of bids or asks of the kind of event CME says they look for). The gap widens until you are stopped out, then the price returns to where it was in a burst of "trades" in the opposite direction. These "trades" are rational only since they are for the same beneficial owner. The machine moves in a counterintuitive but rational and ruthless sense- when you buy from it, it is short, and it benefits by the price going down and your selling back to it at a lower price than you paid. And, vice versa, of course. The behavior as price/market maker is opposed that for a price taker. The regular guy, the price taker, when short, exerts a bullish influence on price, not bearish. In the CME, what you might call "retail" or "discretionary" or "thoughtful" or "hand" trading volumes are way down. Basically, every retail trade today is with an market-making HFT machine as counterparty. So, unless you are a physical player in a market, either always buying or always selling, you cannot win the game unless you trade counterintuitively as-if the machine, buying further when high and selling further when low, and only during periods where your trade "hides" with opposing-view retail trades. So-called "value traders" will always lose in the new and corrupted CME. The retail volume is too low to provide "cover"- the HFT who just sold to you realizes you can be immediately stopped out if the price gaps down. And, whatever one's opinion of algo/daytraders, the fact you can't trade major markets with normal stops, or even stops at all, hurts the US economy.
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Shouldn't an intelligent trader be able to spot this as well? Seems like an average Joe can "protect" themselves by not placing their stops so close to the market. What am I missing?
IAS, I don't think you miss anything. I trade CME futures for a living, and I have been forced to set extreme stops to reflect the "tax" I pay whenever I put on a trade, up to 10 cents in Crude Oil (a contract with one cent bid-ask spread). Basically, a Crude daytrade looks like +10c/-20c, the opposite of what we are taught for risk/reward. Today, the instant a One Contract Brent trade was put on the market gapped 10 cents against, Buy or Sell. There was only one machine making the market. The machines are becoming even more brazen, at least in Energy futures where we're seeing routine and quite massive predatory attacks overnight during the deepest lulls in trading, namely when Singapore is at lunch. Overnight, you basically have to take all stops off and study the tape for the "signature" of the predator, distinguished from any retail buy-in to the move. A typical signature is after a series of one contract Buys by "value" or time-of-day robots followed by a 400-contract "Sell" burst, say gapping Crude down 25 cents. This can be bought against, as the "Sell" was clearly predatory and not momentum, collecting lots just sold to the value robots. Nobody looking to Sell 400 contracts would do so in a single order at market in the middle of the night and pay an extra 25 cents each ($100K) to do so. So trading is no longer about value- no longer are we "investing"- but a game, in the example buying against the move, essentially without a stop, withstanding his follow-up efforts to stop you out.
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