I read something on Zero Hedge about major banks (specifically Deutsche Bank) manipulating the price of silver, gold, platinum and palladium. ---------- After months of "smoking guns" and conspiracy theory dismissals, a Singapore-based Deutsche Bank trader (at the center of fraud allegations) finally confirmed (by admitting guilt) what many have suspected - the biggest banks in the world have conspired to rig precious metals markets. The Deutsche Bank trader, David Liew, pleaded guilty in federal court in Chicago to conspiring to spoof gold, silver, platinum and palladium futures, according to court papers. Bloomberg notes that spoofing involves traders placing orders that they never intend to fill, in an attempt to manipulate the price. Defendant LIEW placed, and conspired to place, hundreds of orders to buy or to sell precious metals futures contracts that he intended to cancel and not to execute at the time he placed the orders (the "Spoof Orders"). Defendant LIEW generated Spoof Orders manually. That is, LIEW physically clicked his computer mouse or keyboard keys to enter each Spoof Order, and physically clicked his mouse or keyboard keys to cancel that order. A common technique employed by defendant LIEW was to place and cancel one or more Spoof Orders on one side of the prevailing market price. The intent of these Spoof Orders was to facilitate the execution of an existing Primary Order on the opposite side of the market. By placing Spoof Orders opposite the Primary Order, LIEW intended to create a false appearance of supply or demand and induce other market participants to react to this false information in order to move the market price and/or increase the available quantity at the desired price of the relevant futures contract. During the time the Spoof Order was live in the market, or shortly after it was cancelled, LIEW's Primary Order on the other side of the market would often execute at a more favorable price than was otherwise available before the Spoof Order had been placed. ----- So, how does spoofing actually work? Do the traders put in a bid for a higher price and try to manipulate metals price higher and then buy a PUT because he knows it won't sustain itself ? Or do they sell an Option and hope it pulls the price higher or lower and then cancel the option when the price moves before someone sells it? ---------------- This is what Investopedia says, but it doesn't relate to securities. What is 'Spoofing' Spoofing is a type of scam where an intruder attempts to gain unauthorized access to a user's system or information by pretending to be the user. The main purpose is to trick the user into releasing sensitive information in order to gain access to one's bank account, computer system or to steal personal information, such as passwords. ----------- How many contracts do you think that they had to buy/sell before they were able to influence the price? http://www.zerohedge.com/news/2017-...-fraud-conspiracy-rig-precious-metals-markets
Suppose that stock X has a bid of 10.00 by 100 and offer at 10.02 by 150. This current state of the order book has more sellers than buyers. Knowing this, buyers will typically bid lower knowing that the sellers will have to drop their offers to compete with other sellers. Suppose a spoofer comes along and posts an order for 10,000 shares at 10.00. The imbalance is now skewed on the bid, and sellers will lift their offers up. The spoofer also sends a sell order for 100 at 10.03. The spoofers bid pushes the market into that resting offer and now they get filled and immediately pull the bid. Now that the market is bad to equilibrium, it is likely to revert to the initial book, and the seller can bid 10.01 and make .02 on the trade.
Quant.... your observation is 100% right. But you will never beat the game on something that trades 20 million shares/day unless you have some serious technology that operates with no latency within micro-seconds. On the other hand.....Do me a favor and dedicate a monitor to DPZ Monday. Its almost 1980's in its transparency. I hawked it all day today . You'll get a woody.
Agreed! My background is in HFT so it's upsetting to see when the tech is used like that and gives all HFTs a bad name. I'll definitely check it out. Might have to make a few scalps in my PA.
Thanks, that is a bit clearer. I wonder how often they put in bids that they intended to cancel and got caught holding the bag?
While completely illegal/unethical, it's certainly not risk free. Imagine how much size you'd have to show to move SPY or ES. If someone decided to take you out, the party with deeper pockets and risk tolerance would win.
I'll try to record the price ladder for y'all on CL at report time next week. Not sure what can be gleaned from it, but it is quite interesting what goes on.
As to the spoofing problem, if you read through this long enough, you'll see the problems... http://www.cmegroup.com/tools-infor...ulation+Advisories/Business-Conduct-Committee