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The Oil Markets Are Rigged - Here's How
We have remarked numerous times, thanks in many cases to the detailed analysis of Nanex LLC, that oil markets (among others) are manipulated or rigged. But, just as Michael Lewis was what equity market participants needed to comprehend what was occurring stocks, so WSJ reports today on 'spoofing' in the oil markets. Spoofing is rapid-fire feinting, which as Tabb group's Matt Simon notes, "raises a question now about whether someone is engaging in legitimate market activity or clear market manipulation." Here's how they do it...
Ironically, the last time we commented on this was the day after The SEC charged another trader (and his machines) with spoofing.
But, as The Wall Street Journal reports, it continues...
The 2010 Dodd-Frank financial-overhaul law outlawed spoofing, but the tactic is still being used to manipulate markets, traders say. “Spoofing is extremely toxic for the markets,” says Benjamin Blander, a managing member of Radix Trading LLC in Chicago. “Anything that distorts the accuracy of prices is stealing money away from the correct allocation of resources.”
CME, the world’s largest futures exchange, put out rule clarifications in August 2014 intended to end spoofing.
Here's how it works...
Spoofing is rapid-fire feinting. A spoofer might dupe other traders into thinking oil prices are falling, say, by offering to sell futures contracts at $45.03 a barrel when the market price is $45.05. After other sellers join in with offers at that lower price, the spoofer quickly pivots, canceling his sell order and instead buying at the $45.03 price he set with the fake bid.
The spoofer, who has now bought at two cents under the true market price, can later sell at a higher price—perhaps by spoofing again, pretending to place a buy order at $45.04 but selling instead after tricking rivals to follow. Repeated many times, spoofing can produce big profits.
Rigged by any other name...
“There are stories going way back about the guys in the Chicago trading pits trying ways to disguise their trading or show their cards in a certain light,” says Matt Simon, an analyst at the market-research firm Tabb Group. “It raises a question now about whether someone is engaging in legitimate market activity or clear market manipulation.”
The full extent of spoofing isn’t known, but traders say it is evident in how prices move every day in a range of stock, bond and futures markets.
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No mention of derivatives?
No mention of HFT? Orders put in and taken out wilthin a fraction of a blink of an eye?
Everything is a hoax nowadays.
Have fun with your markets, your financial talking heads and your capitalism without capital but only paper (or digits).
I am out.... (apart from the physical blinking stuff.
No mention of blow and hookers? Surely they're not wasting the loot on paying down their mortgages. So just relax everybody, it's all getting added to the GDP.
SHOCKER! What isn't rigged on Wall Street?
its all rigged.
Where's Flak telling us that the high prices were because of Peak Oil again?
Traders should not be allowed in the commodities market, only producer and end users, buy once, sell once, that is it.
Problem solved.
Or, institue a trading tax of 5% per trade.
Alternatively stop the cancelling of bids and sales - problem solved and someone with deep pockets will have to pay up...
Traders should not be allowed in the commodities market, only producer and end users, buy once, sell once, that is it.
Wont work, no liquidity...
When an order is put in and removed as soon as others see it and make manipulated decisions based on it, is that liquidity?
Yes, I am still surprised that the powers that be will let us exchange those digits for ammo.
tick tock...
That should tell you how scared they are to move too fast.
...except for the fact that the ATF is proposing to ban M855 62 grain penetrator 5.56mm ammo for sale to civilians.
FIGHT THIS PROPOSED BAN, NOW!
i just got a thousand rounds for each of my guns. woot!
"...shall not be infringed."
If infringed Unconstitutional aggression, levying war, then:
Article3, Section 3: Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court.
The banksters need to repay us.
They can seize all the weapons they can find from my house. The ones under the garden I will "bring" to them.
The CME is going to close down most of their pits by July of this year. They've been relentless in their push to go electronic, and the only thing that paused that progress was all of the older members on the trading floor that weren't about to give up their seats.
Now that most have either retired or moved "upstairs" to screens. (Not all make the transition well, see the documentary "Floored" for that struggle) The CME is now free to shit-can everyone who works on the floor and keep the bigger pits for show.
Open Outcry wasn't perfect, but it fucking worked. This HFT bullshit and CME's Globex platform is just another way to squeeze pennies from people under the banner of "progress". I'd love to know what their fall-back plan is if their electronic platforms ever have a bad day - nobody would be left who would know how to trade in an open-air pit.
They never should've stressed electronic so heavily, but given they don't give two shits about anything but volume/revenue, it isn't too surprising that they'll make every short-term decision at the expense of long term planning.
Just par for the course over at the CME.
As a precious metals fan with a growing collection of scarred assholes, none of this shocks me ( nor do I suspect it would shock the average zerohedge gangster ) but I'm sure to the lemming masses it is an eye opener.
well technically the market price becomes what buyers are paying.
If the spoofer "spoofs" and the suckers suck... what the sucker pays/receives becomes the new market price!!!
It has been done for centuries without even trading futures.
Go figure...
As Fake as the stock market???
Even taking time to read this article is sad. Dyh all markets are rigged period end of story but I guess if they wernt talking about Lehman or rigged through in Putin for laughs well there would be no news to read
No sarcasm intended
Correction Tyler: "The gold and silver markets are rigged - here's how".
Moar (and better) correction;
"The Markets are Rigged - Here's How"
and further to your correction is mine;
"the casino is rigged-heres how"
So ... just like cryptocurrency exchanges.
At least in crypto exchange you can't do naked short selling unlike in crimex on XAUUSD with 100:1 paper to real ratio.
One Bitcoin is one Bitcoin not more not less.
Of course there is some whales who dump or buy but it's rare now.
Try to buy/sell 10.000 BTC on a market order, it will move the price a lot.
As Mr. Simon says this sounds like a very old, though risky, technique. The larger and more anonymous the market, the easier to pull off more than once before everyone decided you were a welsher and stopped dealing with you. With the speed and relative anonymity of current electronically-driven markets, where most of the traders are computer algorithms, this sort of thing gets a lot easier and a lot less acceptable. There's a gray area between what's just sharp practice and what's outright fraud, and it's usually best to stay out of there.
With proxies/ECNs, it's like shooting fish in a barrel. I was a market maker for many years. You never knew who was behind ARCA, AUTO, EDGX and others like them. It's easy to conceal your identity and EVERYONE is doing it.
How can the oil 'markets' not be rigged?
+100
How can any markets touched by bankers and/or politicians not be rigged?
I believe you meant BankSTERS....
Wanted to correct you real quick. :)
"I believe you meant BankSTERS...."
Or grifters.
The banksters need to repay us.
One day soon "banking" will become the most dangerous profession to be, or have been in.
"The spoofer, who has now bought at two cents under the true market price"
If spoofers exist, then is there any "true market price" ever?
Well...aside from all the click baiting that this has become...this is a good question.
"What happens when my Nanex phoney market meets one with actual money?"
And the answer is debt, taxes, skyrocketing crime and Russians nuking you and your Cities!
Hooray!
Who needs real money when you can just print it!
Looky here at my "shocked" face.
sounds like a bunch of algos playing grab ass to me
I think I will adopt your grab ass term.
yeah ....this is called " LIQUIDATEE " !
Can said Spoofer be nail gunned???
Part 1 and Part 2 would seem to cancel each other out.
Furthermore, this activity looks alot like buying to cover.
This is not the rigging I am worried about.
The rigging I am worried about is done by the market makers. They use their clien'ts orders and cash on a fractionally-reserved basis to bet against the balance of their client's positions... So if a bare majority of their clients dollars are betting short, they can take their client's own dollars, write themselves a loan up to the bank's reserve ratio, and then use that money to bet the other way...creating a self-fulfilling prophecy.
And that is the kind version.
The not so kind version is that when a retail investor buys an asset through a broker, the broker isn't actually executing these trades individually, instead they can mark the client down as though the trade were executed, and account for it as though executed, and then do whatever the hell they want to with your money.
And then there's naked trading. How do you catch a market maker who is trading naked? You can't until/unless they bankrupt themselves. So, an oil company places puts on the price, driving it down (supply) and refineries or other users of oil place calls' (demand) ...but Mr Market can write as many of either as he wants for his own purposes. He has 90 days to close the trade, and worst case is he settles in cash...which, if you are a customer, can be your own funds.
"And still the oil and gas keeps coming."
Why is that scary?
Doesn't seem to be hurting equities at all...
Only one quibble with this:
He set the price with a fake offer, not a fake bid. Trust me, I've watched this enough times as a Market Maker. Someone throws up an outsized offer, pulls it when other offers stack up behind it only to go bid (through a proxy like ARCA or AUTO so as not to reveal their identity) and then gets hit at the lower price. The converse is putting up a big bid and getting other MMs to start taking the offer. Of course, through proxies, the huge bidder has his minions offered at the higher price making prints.
I think the correct term is "proxy/server" meaning the entire...scam for lack of a better term...is fully automated.
To .exe it however requires a MASSIVE amount of not only computing power by actual electricity.
You also have to secure "the flow" (for example "be the phone company itself") by making sure all data travels over your network and your network alone.
I did see Cisco soared on absolutley no news whatsoever a week or so ago.
of course the algo is of no use without the data.
Knight Trading lost...400 million in five minutes was it?
Think the Swiss Franc thing engineered by Credit Suisse was 80 billion.
this is what we call cyber-financial-war
more humane than killing each other outright?
The Russians have alreay wiped out one one million person city off the map...working on number 2 (with great cheer leading on a near daily basis from Mish Sherlock) and nlso number three.
Once done they start moving towards Kiev itself.
That's well over 4 million displaced right there.
After what happened to their ruble I imagine they can't wait to show the folks who love this stuff the difference between starving a people to death as Stare policy and what a real kinetic attack that vaporizes your entire City "forever" looks like.
The difference with the past, however, is that if you see someone in the pit offering at x and someone bidding at x, and you steal that trade because you're closer and louder to the guy offering in the pit and then turn around and sell it at x+1 to the guy who was bidding at x on the other side of the pit, he'll come over and punch you in the face. We need to bring that back. I think the fine 20 years ago for assault in the pit was like $100.
The other thing is, this is only effective IF the bid or offer is outsized enough to convince other participants [read: scammers] that there is real volume there. The real risk to the spoofer is that someone calls their bluff and takes them or hits them at the size displayed and they have to eat the order and get stuck with it. Of course there are derivatives/options for the occasional whoopsie, but otherwise only deep pockets and big money can play this game OR move fast enough not to get hit or lifted. And if you do, you have to have a relationship with the counterparty that they don't come back out to you if you decline and force the matter and MAKE you take the trade.
Spoofing and similar market manipulation practices would be neutered by simply adding a random delay to every transaction. With that, only long term transactions could hope to achieve desired and legitimate results. Sort term manipulations would exhibit random, uncontrollable behavior.
You're not a trader when you hold your postion for microseconds. You are a manipulator and the marketplace doesn't need nor want you around.
Gosh, now the Fed and the SEC are going to find out about this, and what all the "liquidity" is doing to markets!
Empowering crooks to create wealth!
But we have an atty general who is scared of Wall street who is now leaving his job, and another one in cahoots with the banks who will replace him!
And SHE like slaps on the wrist settlements, insead of handcuffs!
Stock symbols don't mean shit. Everyone of them is a gambling game, All a stock symbol is for is a place for you to pull up a chair and throw money on a table(aka wallstreets table) and attempt to steal someone elses money that's also playing the same game. Just pick one. All the same shit.
The International Energy agency's report from feb 10 shows global demand for 4Q14 at 93.53 M/BD with supply at 94.24 M/BD. Demand for 1Q15 92.55 M/BD, no supply numbers for 1Q15. Supply/demand numbers have been around this range plus/minus 2 M/BD since 2012. Foward demand is slightly up. https://www.iea.org/oilmarketreport/omrpublic/
If oil prices were market driven how could the price be down 60% from its recent high while demand is forcasted slightly up? Even if there is a global slow down, past history shows demand will not go down greater than 10%.
Oil markets are rigged just like every other market. Probably the fed using their secret book to pound futures lower. Another unannounced stealth QE to get americans shopping.
Make the markets toxic?? LMAO! The US markets are so toxic they make drinking a glass of roundup nutritious.
What is the "true price"? Econ 101 might say that marginal cost must not exceed marginal revenue. Of course, that's just a textbook response.
The Fed's QE programs is what riggs the stock market.
But hey, we will never know for sure because the Fed works for Obama and is unaudited and unregulated.
I had a buddy who worked for Merrill Lynch at the time, very successful trader, who would tell me about how he would generate interest in a trade. Spoofing is how he did it. Because he controlled such large positions, he was able to get a lot of people interested. It was standard operating procedure for him, he just called it "being active."
The problem here, is that the spoofer does NOT own shares to sell at $45.03 but magically creates them out of thin air. yet the regulators do not see this. Likewise, there is no '3 day window' for closing on this - the spoofer doesn't have to have cash or margin credit on his billions in purchases and sales (but the little guys do).
I thought sPoofing was another name for shirt-lifting.
Toxicity; it is all the rage!!
Till it is not.
http://legal-dictionary.thefreedictionary.com/Racketeering
Here's how they do it...
The way it is described, I don't see any wrong doing in this activity. The guy putting in a large order runs the same risk of that order being taken instantly, as anybody else. As to the small-account algos piggy-backing on large orders ... why should they have a guarantee those large ones are not withdrawn? It is their decision to put chips in, nobody forced them. If they constrantly lose money with this type of trading, they just chose a bad approach and need to rethink it
Really?
Why anyone would be surprised at this is completely beyond me.
After all, LARGE money is at stake.
That's all you need to know really.