Spoofing
Placing large orders with no intention to execute, to mislead other participants about supply or demand, then cancelling before they fill.
Definition
Spoofing is the practice of placing one or more orders that the participant does not intend to execute, in order to give other participants a false impression of supply or demand, and then cancelling those orders - typically after a smaller, real order on the opposite side has filled at a favourable price.
Mechanics
- Trader wants to buy 100 contracts.
- Trader places a large sell order at a level below the touch.
- Other participants react to the apparent sell pressure and lower their bids.
- Trader executes a buy at the new, lower price.
- Trader cancels the large sell order.
Regulatory anchor
EU MAR Article 12(2)(a); MiFID II Article 17 algorithmic trading governance; ESMA Q&A on spoofing; MiCA for crypto. In the US, the Dodd-Frank Act §747 made spoofing an explicit criminal offence on commodity markets.
Detection signature
Standard surveillance metrics include order-to-trade ratio per instrument, cancellation rate within N milliseconds, asymmetry of placement across the book, and execution causality (did the small fill on side A coincide with a large cancellation on side B). Effective detection requires nanosecond-grade timestamping.