Spoofing

A spoofer places a large visible order on one side, say a big bid, which suggests strong demand. Other traders and algorithms respond and the price moves up. On the opposite side the spoofer has a smaller genuine order, which then executes at the better price. The large bid is cancelled. Stacking such orders across several price levels is sometimes called layering in market abuse, which differs from the money laundering stage of the same name. The key is intent to cancel at the time the order is entered, since cancelling orders is normal. Prosecutors use order logs, trader messages and patterns across many days. Spoofing is prohibited under United States commodities law and in EU and UK market abuse rules. Orders shown on the book are treated as an offer to trade, so entering them with no intent to fill breaks that assumption.

A futures trader places a genuine sell order for 50 contracts. At the same time he enters five large buy orders just below the market, 500 contracts each, which he has no intention of filling. Other participants see apparent demand and raise their prices, his sell order fills at the higher price, and he cancels the buy orders within seconds. Exchange records show the same pattern on 40 days.