What is spoofing and how it works in cryptocurrency market?

Some people manipulate markets and in particular cryptocurrencies thanks to order books. This is called “Spoofing” in the jargon. This is also called “Dynamic layering”.

It’s a form of market manipulation in which someone claims to want to sell a large volume and everyone says, “Oh, then I’ll sell too,” which lowers prices. Once the prices are crushed, the guy buys and pretends again that he wants to buy a large volume. And everyone thinks, “Oh, in that case I’ll buy too,” which raises the prices so that the guy can sell at a profit.

How it works:

You select a stock that has enough liquidity but not too much

You open an account with a broker that allows you to trade futures on this stock. Thanks to this broker you can now trade in micro-seconds (1/1000000 sec). The future on this action currently stands at 3000.

You place sell orders comfortably above the market price of futures backed by this stock (so that your orders are not really triggered). These orders are not immediately processed because they are just above the market price. So you’re selling at 3020

Since the daily volume is around a thousand contracts, your order is immediately spotted by the Algos. The algos think: “Um, it looks like a big institution is selling its stock, the price will fall, it’s better to sell now. »

Their sale lowered the price to 2970. You cancel its first layer of sell orders (layer 1) and replace them with only twenty batch buy orders at 2972. These purchase orders are true because this time you really want them to be bought by the market. It works, your orders are quickly passed.

Now you have to be careful and fast because you are in position.

You now have 150 purchase orders but well above 2070 before quickly cancelling them. Most spoofers use algos to improve speed. The aim is that purchase orders always appear in the order book but have actually disappeared from the market.

The process is now reversed. The same algo who thought it was necessary to sell a little earlier is now thinking that it is necessary to buy. The price goes up on 3010, you sell your 20 lots and cash the difference.

That’s it, that’s the spoofing. This is theoretically prohibited, but since the cryptocurrencies market is not strictly regulated, there are many such practices.

There are three main types of traders in the cryptocurrencies market:

  • The Pro, who comes from the world of finance and applies his speculative tactics to shave all the little golden boys who already believe they are in his league. He has enormous resources at his disposal.
  • The Golden boy, who has broken his PEL, uses a leverage effect and believes he can earn 100% while the margin generated by professional managers is rather around 5% per year… He wastes his precious time watching a quote stir on his computer screen.
  • The holder. He does not seek to maximize his earnings by multiplying trades. He is content to be patient and realizes himself in life instead of worrying about nothing. He knows the blockchain is here to stay.
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Philipp Traugott
Philipp Traugott

Phil Traugott is a staff writer at CaptainAltcoin. As a trained marketing specialist for copywriting and creative campaigns, he has been advising top companies on the following topics: online marketing, SEO and software branding for more than 10 years. The topic of crypto currencies is becoming increasingly important for companies and investors and he found it very alluring and fitting for his skillset which prompted him to pivot his career towards blockchain and cryptocurrencies.

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