What Is Spoofing And How It Affects The Market

Spoofing is form of market manipulation which process include issuing of fake orders to purchase or sell assets like cryptocurrencies, Stocks and commodities. This process is made possible when traders use bots and algorithms to automatically place buy and sell orders. The bot then cancel the orders almost when being close to being filled.

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Spoofing is a deceptful act that aims to boost market demands in a way to reach a certain price level then instantly removes it. Spoofing initiates a buy and sell pressure in the market which tends to increase value of a commodity and when it reaches a level in which they're satisfied, it removes all the orders and the price Will plummet.

How Markets Often React To Spoofing

Spoofing orders are difficult to find and when when the market notice them, it tend to respond aggressively. If the orders are places in substantial areas of interest for buyers and sellers such as resistance zones or significant support, then the spoofing might be carried out successfully.

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Let's use Bitcoin for example, if $11,000 is a study resistance level for Bitcoin. In technical analysis, the term "resistance" indicates a location where price meets a "ceiling", then we can predict that sellers Will place their bids here to sell their assets. The price might collapse unexpectedly if it's rejected at a resistance level. Moreover, if it breaks past the barrier, there is a high possiblity of success.

Bots are more likely to place huge orders just above the $11,000 barrier if it have a chance of becoming a resistance. When buyers sees bogus sell orders above a technical level, it will bring less motivation to purchase more at this level. This is an example of how spoofing influences the Market.

When is spoofing less effective?

Spoofing becomes less effective when there's a probability of surprise market movements which makes spoofing more riskier. E.g A trader that may want to sell a fake resistance level and the fake orders may complete unexpectedly with a spike and the retail traders "FOMO( Fear of missing out)" produces high volatility. This wasn't the spoofer goal as he didn't expect to be In this situation. In a blink of an eye, a flash crash may fill a even massive orders in mere seconds.

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Moreover, spoofing becomes extremely riskier when the spot market drives a market movements. E.g spoofing might be less successfully if the spot market cause a rise, indicating a strong interest in purchasing inexplicit assets directly. This on the other hand, is dependent on the current Market environment sbd other aspects.

Why is spoofing terrible for the markets?

Spoofing is considered a crime against the law due to its detrimental influence on the market. Spoofing causes price alterations that doesn't reflect in supply and demand while the spoofers benefits from these market movements.

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Research shows, that U.S agency has raised concern on market manipulation. In 2020, The securities and exchange commission (SEC) rejected any Bitcoin related exchange proposal. Exchange Traded Fund (ETF) enables more investors in the U.S to have experience to a particular assets e.g Bitcoin. They stated several reasons for rejecting this phenomenon, one of which that included Bitcoin market vulnerability to market manipulation.

Conclusion

As Bitcoin market develops, There will be more liquidity and institutional adoption. With this event they will be immune to market manipulation and make cryptocurrencies more secured and legit. Thanks for reading...⭐

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