Deribit takes you to understand Spoofing (spoofing) transactions

2020-10-30 11:03

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Will the infamous spoofing come back in the cryptocurrency space?

Original title: "Explaining and Exploring Deception || Deribit Insights"

Original source: Deribit Insights

Rhythm Note, the case of Yishidun International Trading Company, which once caused a sensation in the country, made a profit of more than 2 billion through high-frequency programmatic trading, and the FBI’s arrest warrant for Bruce Mao, a Chinese national from Tower Research Capital, a high-frequency trading company (for details, see "Peking University's top student "cutting American leeks" is wanted globally, and the "hidden rules" of investment banks are under global supervision" Settle Accounts After Autumn"") all involve spoofing (spoofing) transactions.

Explain and explore spoofing

< p align="justify" line="d4Eg"> The concept of spoofing is notorious in both traditional and cryptocurrency markets. Today, I'll examine what it is, why regulators tend to be against it, and who are the real winners and losers in its existence.

What is spoofing

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The standard definition of spoofing is an order that is faked to deceive Others buy before it or sell after it, with the intention of canceling before it's done. Spoofing is placing a spoofed order.

The major traders (including Igor Oystacher2, Navinder Sarao3 and DRW4):

The first case involved mastering How does CME's matching engine work so that a large offer is made first and then touches its own, triggering a cancellation and clearing the remaining order size.

The second case involved placing large orders on S&P futures and Lightning Orders to influence the next move in the order book.

A third case involved establishing a position and then bid the underlying at fair value to trigger financial cash flows from the derivative itself.

In all three cases, the allegations of spoofing The reason for this is that some market participants feel that these trading strategies put them at a disadvantage.

How can an order be forged?

The first question we might ask is how can we Know if an order is forged. The simple answer is we can't! We cannot determine whether it is true or vice versa by observing the state of mind of the placer of any given order on the central limit order book. After all, we cannot say that just because a large order was canceled, it must be counterfeit. In all order books, small, medium and large orders are placed or canceled frequently, which is the market practice.

Thus, in spoofing cases, the evidentiary process pays less attention to the order The activities of the book itself are more concerned with proving the state of mind of the person who placed the order. The plaintiff must prove that the orders were placed with the clear intent of misleading and avoiding the fulfillment, while the defendant must prove that the orders are in fact freely available in the market, open to anyone and that they can be filled . It's a hazy space, full of room for interpretation. Notably, the regulator won the first two cases against smaller players but lost the third case against a large trading firm with significant legal resources.

Losers and winners

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So, the next question will be: who exactly loses money because of spoofers? In a word, it is the leader, more specifically the leading algorithm. This could include algorithms that watch for buy-sell imbalances to decide how quickly to execute accumulated orders, but it could also include profit-seeking algorithms, hoping to buy and sell ahead of large volumes.

You may be wondering why public policy treats leaders as A protected class to treat. Why can't traders ignore all large orders in their execution logic and simply dynamically react to the presence of spoofers?

One of the reasons may be the concept of "right to gather 5". “Participants who exploit this group will be ridiculed given the pervasive algorithmic execution of buyers and sellers. A poker analogy might be appropriate here, if no one bluffs when they don’t draw their cards, the first bluff People may be called not gentlemen.

CFTC in Navinder Sarao Changes in the order book must represent "legitimate changes in supply and demand," argued the paper.

Many market participants rely on the information contained in an order to Consider the relative total volume of bids and asks in the order book when making trading decisions. For example, if the total number of sell orders greatly exceeds the total number of buy orders, market participants may believe that a price drop is imminent and trade accordingly. Similarly, if the balance of buy and sell orders changes suddenly, market participants may assume that the new order represents a reasonable change in supply and demand, and trade accordingly. Additionally, many market participants utilize automated trading systems to analyze the market for these types of order imbalances and use this information to determine trading strategies. Therefore, the action in the order book affects the price of S&P e-mini futures.

Another reason may be that spoofers can easily find scapegoats. John Arnold6 noted the absurdity of blaming Savao for the Flash Crash, since he had been using the same spoofing tactics for six years before the Flash Crash. In fact, it is no coincidence that the majority of spoofs seen in the market are directed against independent traders and trading firms.

The beneficiaries of the spoofer are less obvious but equally important. John Arnold also suggested in a 2015 Bloomberg review article7:

The contest between the swindler and the leader is like a game between computers and the time is only ten times the blink of an eye one-third. No one can see these transactions, let alone react to them in real time. The only ones affected by the scammers' deceptions are the leading high frequency traders, whose strategies are detrimental to every other market participant.

To Arnold, spoofers, by placing large orders and then canceling them, are actually doing God's work, helping other large traders to be able to disguise their intentions. A market free of swindlers means that anyone wishing to place a large order must logically have no interest in canceling it and thus can be ahead. Once a swindler enters the market, leading algos have to think twice before making a trade.

Decentralized finance: Paradise for scammers?

As central limit order books become practicable, it is likely to be entirely impossible to conduct any form of market surveillance, let alone go to court to determine whether spoofing has occurred. That would mean some sort of spoofer's paradise, but it could also mean it would be a great A/B test to see if non-spoofers really care about being spoofed or not. Conversely, if regulators find that decentralized finance is unreasonably impossible to regulate, they may move to ban trading on decentralized exchanges entirely.

Original link

Appendix link:

1. Original text link:

https ://insights.deribit.com/market research/explaining-and-exploring-spoofing/?lang=zh-hans

2. Igor Oystacher:

http://www.marketswiki.com/wiki/Igor_Oystacher

3. Navinder Sarao:

https://www.bbc .com/news/explainers-51265169

4. DRW:

https://www.reuters.com/article/ drw-investments-cftc-idUSL1N1Y81ID

5. Gathering rights:

https://johnhcochrane. blogspot.com/2015/04/just-when-you-thought-financial.html