This is starting to get old. Nearly every single month, I am writing about big traders at large banks, ripping off small traders through the illegal activity known as ‘quote stuffing’ or ‘spoofing.’
Just a mere two weeks ago, I wrote an article that detailed how Mizuho Bank, Geneva Trading, and Victory Asset had been fined millions of dollars for scamming small investors.
Here we are yet again, Bank of Nova Scotia has agreed to pay an $800,000 penalty for ‘spoofing’ in the precious metals Futures markets.
What is ‘Spoofing?’
The following is a copy and paste from the article that I wrote a mere two weeks ago. If you are unsure what ‘spoofing’ is, then please read the following:
Spoofing is incredibly simple. It is the act of stuffing the order book with buy or sell orders…that you have no intention of actually executing. Anyone can do it. Let’s take a look at the most common example.
Suppose that you enter a long position in the Emini SP500 futures contract at 1300. You want the price to go higher so that you can make a profit. For the majority of us, we have to sit and hope that additional buyers will push the market higher.
Spoofers do not wait for ‘organic’ or natural buyers to enter the market. Spoofers use sophisticated computer programs that instantaneously enter massive quantities of orders in the area where they want to exit their trade. Not where they want to enter a trade.
The influx of orders is meant to fool small investors into believing that something big is happening. And they should pile into their position, in the direction of the order flow.
However, the spoofed orders are never actually filled. They are canceled just a millisecond before the price touches the order. Small traders, like us, cannot see the manipulation because humans do not have the capacity to digest information and react at the millisecond level.
The end result is that small investors, like us, are spending a great majority of our time ‘chasing our own tails’ while the spoofers are leading us from point A to point B.
Who is enabling the ‘Spoofing’ phenomenon?
There is an entire cottage industry of software providers that are currently pushing ridiculous software that proclaims that “you can predict the future by watching order flow.”
You cannot. Its complete and total bullshit. The three main purveyors of this ‘order flow’ nonsense are Jigsaw Trading, Market Delta, and Bookmap.
Let’s not forget to also call out NinjaTrader Brokerage and their relentless and outrageous promotion of these fraudsters. I have dedicated hundreds of hours exposing the NinjaTrader Ecosystem and the army of scam artists pushing this crap.
The following short video is an example of a douchebag selling his ‘order flow’ snake oil…
Congratulations for sitting through this 2-minutes of nonsense.
Resting Orders are NOT PREDICTIVE
None of this ‘spoofing’ nonsense would be possible if traders simply ignore resting orders.
Larger banks and institutions are using resting orders and quote stuffing to lure the sheep into the slaughter. Period. End of discussion.
Will they ever stop? Misinformation in markets is as old as markets themselves. Yes, it’s wonderful that the CFTC takes action in an attempt to keep markets functioning properly.
However, the lure of easy money is simply too great for us mere humans. Nearly all of us will lie, cheat, and steal if given the opportunity at a clean escape.
And finally, RESTING ORDERS ARE NOT PREDICTIVE. Anyone with average programming skills can test whether ‘iceberg’ orders or massive order blocks predict where price is heading. On a second to second basis, its just random noise and misinformation meant to lure the weak into the mouths of the strong.
The scammers, hustlers, and snake oil salesman pushing their BS ‘order flow’ trading software would have you believe otherwise. But over the past 5 years of writing this blog, nobody has pestered these scammers more than TradingSchools.Org in hopes of obtaining definable code that ‘order flow’ is predictive.
Just the latest fad in ‘technical analysis’
Back in the 1990’s, I got suckered by a conman named George Lane. He was the supposed inventor of a new and revolutionary form of technical analysis. It was called Stochastics!
Everyone and anyone was obsessed with Stochastics. The legend of Stochastics was as great as Santa Claus on Christmas Eve. There were stories of people that made millions overnight, all through the magically predictive Stochastic formulas offered by George Lane.
Well, it took about 15 years before this financial diarrhea worked its way through the public-at-large. In the end, the only people that made money with Stochastics were the scammers, hustlers, and thieves that sold the snake oil. Rest in peace, George. You managed to scam the scammer.
It’s funny how nothing ever really changes. How the circle keeps on repeating with the next generation.
Thanks for reading.
Hi, thank you for the information above, but what I understand about order flow is that prints the actual transactions happening in the market, real buys and sales. While spoofing happens but as you said in the post the orders never get filled, orded flow are actual filled orded.
“If any of these guys and could develop an “indicator” that detects spoofing, even a minor level. It would be a game changer.”
Interesting thought – there is a lot of talk about MBO right now in futures – being able to see/use the individual orders at each level in the order book….
This is basically what NASDAQ Totalview was in 2005 – you could see Goldman, GSCO, Solomon SBSH, HSBC errr… HSBC etc – you saw their orders at each level. Which they, of course, used to dick people around. Then HFTs came in and everyone put their orders through ARCA. Overnight the names disappeared and it was all ARCA (or was it ARCX). Then they started hiding in dark pools.
So all this MBO stuff is 20 year old tech that people got wise to. Can’t see how this will be anything but retail trader bait. Those days are dead and done. If you see a big order in the book – it’s because they want you to see it. Otherwise, it will be split. Individual limit orders aren’t added in an iceberg to ’cause you lose your queue position when you add to a limit. So MBO won’t show icebergs either.
As for spoofers, they aren’t that hard to spot – but there are a few issues…
– biggest one – spoofer might not win – some BSD might run him over, take him out before he pulls – so your $$$ is in him winning
– front running a spoof order is no different from a real order – if others look to be front running it – it’ll probably hold, spoof or not
– you never really know his game 100% – what he’s trying to do
Headfakes are better plays, when the market is driven outside a range, forcing stops/breakouts – then market the halts 5-6 ticks beyond the range as the sucker breakout traders are sucked up. Then drive back into the range and it’s done.
Interesting stuff but if someone builds tools to see a very specific play – you can bet the people nudging the markets about will be 1 step ahead of you and use it to fake you out.
Can you do a favor? I hate sounding like a total fool (which is quite common), but what is an “MBO?”
On a side note, I have an ‘its a small world’ funny story. I am currently selling a house and the name of the person making the offer sounds very familiar to me…so I do a google search…and wham, the guy making the offer turns out to part of the gang of spoofers that I have written about. He has no idea who I am. He just thinks I am a handyman making repairs, and we proceeded to make small talk regarding markets.
I don’t want to say too much, because we are in escrow and closing in 45 days. But it should make a funny follow up story because he is currently awaiting trial for spoofing metals futures. As I said, I don’t want to say too much as the story is developing…
Get back to me on MBO please.
A couple of years ago, I wrote an article on Demetris at Axia Futures. I know he uses your software. Apparently he does quite well. But you know me…I have to poke holes in everything.
I understand what you are saying about the order book and spoofing but what do you think about indicators or software that attempt to predict future price change by looking at orders that were completed and if they used limit or market orders?
It seems like it might be more useful but I am new and unable to make an algorithm that can successfully translate this information to something useful, assuming it is even possible in the first place.
Interesting article but would like to challenge your thoughts on Jigsaw. I have been using Jigsaw almost from its inception. Jigsaw clearly shows different types of orders hitting the tape such as large blocks and icebergs ect… Icebergs are my main entry and exit strategy. Definitely agree with some of your thoughts on snake oil in the industry but there is value in some of these tools. Jigsaw is sold as a tool; don’t throw the baby out with the bath water.
Enjoy your blog and keep up the good work.
Thanks for the comment. Actually, Peter is a really nice guy. By far, the most valuable aspect of his platform is the ability for traders to publicly show performance and rankings.
If you are running a scam operation and selling crappy software, then you don’t want to show how poorly the customer is performing.
However, someone has to push these guys to the next level. More development needs to happen. In speaking with the owner of Rithmic, he has stated that additional pieces of data can be incorporated that could perhaps sniff out spoofers.
The idea of order flow analytics was once sexy and cool. Now it’s just stale and stuck in middle age. It needs to be taken to the next level.
If any of these guys and could develop an “indicator” that detects spoofing, even a minor level. It would be a game changer.
Jigsaw shows orders being added and pulled from the ladder. It has never given me an edge, then again I am just a punk retail trader who isnt using some billion dollar algo.