Spoofing (Trading)
Placing large orders with no intention of executing them, to create a false impression of supply or demand and move the price, before canceling them.
Spoofing is a market-manipulation tactic in which a trader places large buy or sell orders on an order book (see Kaavon's "Order Book" glossary definition) purely to create a misleading impression of supply or demand, with no genuine intention of letting those orders fill. Other participants and automated systems react to the apparent imbalance — for example, buying because a large resting bid makes a price floor look strong — at which point the spoofer cancels the fake orders and trades in the opposite direction to profit from the price move they induced.
Spoofing is distinguished from wash trading (see Kaavon's "Wash Trading" glossary definition) in that wash trading involves actually executing offsetting trades to fake volume, while spoofing relies on orders that are deliberately never meant to execute. Spoofing is illegal in regulated securities and derivatives markets in most jurisdictions, and many crypto exchanges now use surveillance systems to detect and penalize patterns of large, rapidly canceled orders consistent with spoofing.
Examples
- A spoofer places a large sell wall just above the current price to discourage buyers, then cancels it once the price has dropped and buys at the lower level.
- Exchange surveillance systems often flag accounts with unusually high order-cancellation rates on large orders as a potential indicator of spoofing.