Spoofing is a market manipulation technique that aims to falsify the true state of the market. It usually involves a trader placing a fake buy or sell order that will never be executed. Spoofing is used to manipulate the market and manipulate the prices of a given asset, using various types of algorithms and bots. Of course, this is an illegal practice.
The process is quite simple. As mentioned, a trader uses bots or algorithms to place a fake buy or sell order. When the order is about to be executed, the bot or algorithm cancels it. The aim of this technique is to create false buying or selling pressure, creating the illusion of greater volume, consensus, and market activity. Additionally, it affects the market direction or price set.
The effects of this are loudly felt in the market, as there is no clear way to recognize a fake order. This illegal technique can be particularly effective, especially when fake orders are placed at key moments, such as support or resistance areas, that are important to traders.
Is spoofing only occurring in the cryptocurrency market?
Spoofing is a phenomenon that is present not only in the cryptocurrency market, but also in other financial markets. What's more, it can be effectively linked to other assets, which in turn affect the market for other assets, such as the US dollar vs. bitcoin.
The effectiveness of this technique is particularly noticeable when the market expects unexpected movements. In a situation where fear of missing out (FOMO) prevails in the market, there is significant market volatility, which favors the rapid execution of false orders. On the other hand, in conditions when the market is guided by an upward trend, spoofing becomes less effective. However, the final result depends on the actions of market participants and many other factors.
What are the consequences of spoofing?
We have previously indicated that this is an illegal practice in the markets. Its negative impact on the market is significant. Why? Because it generates price movements that are not the result of real supply and demand. In the meantime, while the fraudsters manipulate price movements, they themselves benefit financially.
Source of news and content provided
https://kanga.exchange/university/courses/poziom-zaawansowany/lessons/7-czym-jest-spoofing-na-rynku-kryptowalut/
