The Business of Spoofing

Spoofing is a form of market manipulation whereby a trader(s) uses visible (Level II) orders to deceive other traders as to the true levels of supply and demand in the market. These deceptive traders do this to entice the novice traders into thinking large orders are waiting to be filled, which would make the market move; when in fact, these orders get pulled (cancelled) just before being filled leaving the novice trader buying at the top and selling at the bottom.

Unfortunately, this happens every single day in the markets. More and more, this level of deception is flooding into the market and taking unsuspecting traders for an emotional ride.

Recently, JPMorgan found itself tangled in the spoofing game. They’ve just admitted guilt in a record-breaking spoofing case. Their penalty, almost $1 billion to resolve the governments manipulation investigation of metal and Treasuries markets.

$1 billion. Wrap your head around that number. This is a massive penalty and is a record for spoofing. The 15 traders involved in the illegal manipulation of prices, did so over an 8-year period. Their actions caused other market participants losses in excess of $300+ million.

There’s no surprise this level of b.s. is occurring, but damn – $300MM!

Knowing that this occurs on a daily basis (and make no mistake about it – it’s happening every single day) it’s imperative to your success to use this knowledge to your advantage. Avoid falling into the market traps being laid out by these deceptive traders; instead, beat them at their own game.

‘Footprints in the sand’, we talk about this phrase all the time. Basically, it means there are things to look for that will give insight into what’s ahead. Of course, nothing is fool proof, but these “footprints” we talk about lead to other indicators pointing to whether a move is b.s. or legit.

One of the things we need to mention is the level of b.s. that’s being displayed on Level II. This data is just bait; of course, not all of it – but this is where spoofing plays out. The Tape (Time and Sales) is something else; those are prints. Level II on the other hand, is designed to play with an emotional trader’s mind. Making decisions based on Level II data is a fool’s game. Trading this way is trading right into the manipulators trap. They’re dangling the carrot in front of the trading faces that click the buy button based on data being force fed to them.

Now, we’re not saying NOT to use Level II; on the contrary. There are most definitely things to look for in this data that will bring clues – but knowing what’s real and what’s b.s. is an art and is in your best interest to learn how to decipher between the two.

Think of it as just another tool in your trading toolbox. A trader doesn’t NEED to have every tool to get the job done, it just makes things easier if they have all the tools needed to be successful in this business.

JPMorgan traders aren’t the only ones in hot water these days, two ex-Deutsche Bank traders have just been found guilty of spoofing gold and silver markets.

Listen, it’s happening every day. These headlines are just recent, but this s$#t is going on every single day.

The business of finance could be tricky. There are plenty of people always looking to take advantage of others, but there are also those that succeed straight up. Integrity isn’t something all people have, but eventually for those that continue doing wrong – karma will show up at their door!

Again, use the knowledge of this reality to your advantage – it could be a very nice tool to pull out when the opportunities arise.

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