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Michael Lewis is Right “Spoofing” Proves Market Rigged on Daily Basis
By EconMatters
Watch the Michael Lewis video where he discusses Rigged Markets here.
Brent Spoofing & HFT
As the European Market closes today and oil has some bearish sentiment to the trading day, one of the common techniques is to bang the European close in the Brent contract which being a much less liquid contract than WTI can be quite profitable. Usually this takes place around 10:00 to 10:30 am CST but with the time changes this week everything is pushed back an hour here in the US with the European close now being 11:00 to 11:30 am CST.
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Specific Example of Spoofing
Well as this bang the close strategy is happening in Brent pushing the futures contract down $56.50 to $55.50 in 10 minutes a nice illustration of HFT Algo strategy plays out, in other words blatant market manipulation also called spoofing was conducted by some large firm. Here is the case and this isn`t specific to Brent, Oil, or an unusual event this happens in all markets throughout the trading day. So as Brent is going lower some firm wants it to go lower some more so around the $55.75-80 area they park a large order around 900 futures contracts. Now this isn`t a real order, the seller isn`t really going to sit there and take in 900 buyers, it is meant to manipulate the other trading algos and buyers in general from stepping in and buying oil with the idea of pushing the contract lower. In essence “Scare” the market lower! This usually works and today it worked pushing the Brent contract down to $55.51, and needlessly to say this firm benefited from this technique and covered before eventually pulling the entire order once a couple of contracts hit on the price that the seller parked this large fake sell order.
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Easy to Regulate Spoofing Activity
Now this kind of activity would be pretty easily to reign in, easily trackable, and easy to identify which firm utilized this spoofing manipulative strategy. Just pull up the Brent trading records on the ICE exchange for 3/13/2015, and see which firm entered an order previously to sell the Brent contract, then wanted to juice their returns or move the market in the direction of their scalp by placing an additional large order all at once as price is going down during the European Close around 11:25 am CST (900) contracts give or take, and then cancels this same large order once it is hit with a couple of offers to buy at that price. Needless to say Brent traded much higher than this original sell order once it was pulled from the market as the objective of pushing the price lower to fill their existing order was already achieved! This is spoofing, a common technique used in markets, often revolving around HFT strategies, is highly manipulative with both intent and market effect, and happens right out in the open for all to observe. This example of HFT manipulation is far more straight forward than some of Michael Lewis`s HFT claims that are much harder to prove beyond a ‘reasonable’ doubt.
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Spoofing just one HFT Market Manipulation Strategy
This kind of spoofing strategy usually takes place with 100 order lots in the oil markets, and the 900 contract effort was just hilarious, taking overkill to an entirely new level. I have even seen several firms lined up with 100 contract fake sell or buy orders on consecutive price levels. For example, 100 at $48.51, 120 at $48.52, 150 at $48.53, 105 at $48.54 etc. all with the same intent to move prices in the opposite direction of these orders. They don`t really want to get filled, in fact they will never get filled, as soon as a couple contracts hit one of these orders they are pulled from the market.
Now big orders get filled all the time but somebody with a big order doesn`t just advertise to the entire world in most cases, and if legit doesn`t cancel the order when it gets hit. Usually large orders are disguised in the market via various methods to maintain a lower or better cost basis on the overall position. This Spoofing Strategy works, and is highly profitable because its frequency has increased over the last three years with more and more firms adopting this HFT trading strategy. There have been a couple of small fines for this behavior, but the blatant occurrence of this strategy and the increasingly brazenness of the manipulative trading technique shows there is no regulatory force enforcing this trading impropriety by participants.
Markets are Rigged at both the Macro & Micro Level from the Fed to HFT Firms
Now this is just the tip of the iceberg when it comes to market manipulation, I thought I would just provide a concrete example of the kind of funny business that goes on every day in financial markets. The financial markets are manipulated from the macro perspective by the Federal Reserve with their outright asset purchases and various other market interferences all the way to the micro level of HFT scalping algos.
There is nothing wrong with scalping per se, but utilizing manipulative techniques like fake orders to ensure the scalp works and to increase the tick size profit of the scalp is illegal, and occurs every day at the micro level of market manipulation, and is one HFT strategy that is easy to prove which firms are conducting this illegal market manipulation activity.
Accordingly, Michael Lewis is right markets are rigged, but he really is underestimating the extent of market manipulation, financial markets really are the wild west, investors should always be wary of how they are being taken advantage of in financial markets. The phrase Caveat Emptor ‘Let the buyer beware’ applies here.
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Why is a turd tapered at the end?...
...It's to stop your ass closing with a bang!
I guess the banksters and politico's are just a bunch of Turd Taperers - whom will also hold forth that any Banksters or Politicos turd can be picked up by "The Clean End"...
I would be amazed, if it wasn't so common to read these:
"It's always been rigged, get over it. Stop whining."
"There's always been slavery, stop whining."
"There's always been thieves and rapists - learn to deal with it."
As worthless as any examples of plutocratic sycophants that exist.
The comment about OTC and going on forever, no this is completely different, you got that order, you worked that order, it was your risk, there is zero risk in spoofing, there are no more speculators, so the most speed and the most capital runs the market, the fixed income market can be run up or run down 5 handles at a time and nobody will step in front of that, I have witnessed it, I have been a part of it and the CME Group doesn't care. Volume is all that matters and HFT groups that get volume rebates is all that matters to share prices. Why else create anonymity? Because it creates the opportunity and the allusion of a real market place. What you cant see you cant define and what you can't define you cant quantify. That is how the financial markets operate. Why they exist in this format is a testament to the ineptitude and corruption found deep in the SEC and CFTC itself, money talks and thats all that matters. If they wanted to solve this problem they would ban electronic trading, because in a world where money can buy speed and speed buys profit, well then its simply rigged, why play?
Okay, first question, How many B/D's or Primary Dealers have you worked at? Ummm that's right none. I have 5 on my resume.
Next, you are entirely incorrect in your assumption of risk. Anytime an order is entered into the book, be it then, as in on the screen in options or listed equites, or if I was utilizing a beard as we called them in the day, via a broker, I am still at risk, albeit limited to the size of my bid or offer. No different than today and spoofing, whomever is spoofing a bid or offer remains at "risk" for the size of the order and can be taken out, and some have. So your explantion doesn't hold water. This is the same as it has ever been, it's called painting a picture in the biz... done forever and it will continue as it's a part of the mind game involved in the business and people need to get their minds around it and adapt to survive. As you pointed out, the CME can completely change this, and a number of other HFT ill's but that's not going to happen as they built the gazillion dollar data center to cater to them.
The key to survival and success in this business, and pay attention here as this is the key's to the kingdom, is not being able to quantify what you can see, any fucking first grader can do that, it is being able to quantify the probability of what you can't see. Get the distinction? Let me put it in simpler terms. Spoofing or picture painting has been going on since I was a wet behind the ears trader as I was taught how to do by my rabbi. But good traders trade levels and probabilities and know that chances are what you see in the screen is bullshit. Pay attention to price and volume. It takes work, talent and intuition. Not whining about the game being unfair. News flash, the game is inherently unfair. Always has been, always will be. If you can't take it, don't play.
I am no proponent of HFT'S or some of their tactics, but we all must survive amongst them, and whining and crying about the least of infractions that can simply be explained away by, "Oh yeah, I cancelled that 1K lot to buy because my customer cancelled the order or I lost my leg" is simply a waste of time when a good trader would be digging in and not whining and finding out how he could be better than the HFT algo's.
Does this make sense? Because if it doesn't you should probably find a new career.
Dr. E.,
First of all, Fuck Your Avatar.
Second, your premise and conclusion are as disgusting as your avatar. You clearly are a connoisseur of Wall Street Shit, and have accepted the premise that if all the psychopaths around you are breaking the law, then it's normal and everyone else gets what they deserve and should quit whining about it. Seems your moral compass is consistent with your Avatar.
Be mindful that the laws of this country have directed everyone's retirement wealth to this cesspool of theives and den of vipors. The good, quiet, gentle and peace-loving citizens of this republic are not professional traders. Neither are they the takers, long suckling at the tit of government and wasting their days watching Jerry Springer and his ilk. No, the vast majority are the responsible ones, contributing to 401Ks for their retirement, working for a better life for their children.
Abraham Lincoln addressed these concepts in his amazing Lyceum Address, written more than decade before the war between the states. I recommend you read it in whole, but here's a bit that pertains this article, your pernicious take on it, and the consequences of such a mindset taking root:
By such examples, by instances of the perpetrators of such acts going unpunished, the lawless in spirit, are encouraged to become lawless in practice; and having been used to no restraint, but dread of punishment, they thus become, absolutely unrestrained.--Having ever regarded Government as their deadliest bane, they make a jubilee of the suspension of its operations; and pray for nothing so much, as its total annihilation. While, on the other hand, good men, men who love tranquility, who desire to abide by the laws, and enjoy their benefits, who would gladly spill their blood in the defense of their country; seeing their property destroyed; their families insulted, and their lives endangered; their persons injured; and seeing nothing in prospect that forebodes a change for the better; become tired of, and disgusted with, a Government that offers them no protection; and are not much averse to a change in which they imagine they have nothing to lose. Thus, then, by the operation of this mobocractic spirit, which all must admit, is now abroad in the land, the strongest bulwark of any Government, and particularly of those constituted like ours, may effectually be broken down and destroyed--I mean the attachment of the People... By such things, the feelings of the best citizens will become more or less alienated from it; and thus it will be left without friends, or with too few, and those few too weak, to make their friendship effectual. At such a time and under such circumstances, men of sufficient talent and ambition will not be wanting to seize the opportunity, strike the blow, and overturn that fair fabric, which for the last half century, has been the fondest hope, of the lovers of freedom, throughout the world.
I know the American People are much attached to their Government;--I know they would suffer much for its sake;--I know they would endure evils long and patiently, before they would ever think of exchanging it for another. Yet, notwithstanding all this, if the laws be continually despised and disregarded, if their rights to be secure in their persons and property, are held by no better tenure than the caprice of a mob, the alienation of their affections from the Government is the natural consequence; and to that, sooner or later, it must come.
It's a big casino, and 99% of people don't work at Biff's and are not the house.
but....but...it gives the market liquidity.....
Add a non withdrawable tax, no exceptions. Withdraw and you'd still have to pay at the level of withdrawal.
it's for the national good /sarc
same old, same old.
Look, everyone needs to stop whining about "spoofing"
this has been going on forever. As a former upstairs OTC market maker
with a very large firm that no longer exists, I can tell you, professional traders
have been doing this for years. For example, I have an institutional order to buy say
oh, 500K Genetech when it was OTC, my analyst was the axe in the stock, we get 1st crack
at the order, so I sell say Cal Teachers 50K to work the balance and control the order. Say
I have a 1 pt discretion on the 450K left. My desk wants the sales credits, the coverage broker
wants his, the analyst wants the volume and the client wants a good fill and lastly I have my and
the firms P and L to worry about. What is the first thing I do, see who's on the offer and if I feel
they are real, i.e. are they a size B/D in the name. If so, I join them on the offer to hold the price down
or to get lifted and see what's out there. My next call is to the largest player on the offer in the name to
see what he's got going on, if anything and ask him to stay on the offer for me. If I have a good relationship.
And it's a professional courtesy amongst big market makers in the name. Is that spoofing? Except we didn't
call it that back in the day, we called it "trading". Most of trading is a mind game, and everyone needs to put their
big boy pants on and stop crying. I'm sorry the easy days of BTFD are over and now some are beginning to understand
that this profession isn't a walk in the park. I was told when I first entered this business, any idiot can make money in up markets,
it the real good one's that make money in any market.
I've worked in equities, options, otc, listed and fixed income, this practice is done across the board and both upstairs and downstairs.
So stop friggin' whining about it. Out think them. Like baseball, there's no crying in trading.
And oh, yeah, I was Cal Teacher's first show on the 500K to buy.... believe that I got a bridge for ya....
Dig into the deeper darker issues, which are the friggin' news algo's.
One would have to be an idiot not to understand what is going on there.
Anyone remember the news leaks from all the journalists back in the the 80's and 90's ?
And those were the ones who got caught, many more didn't trust me.
Tommorows news today isn't just a saying.
Well with the news organizations so intergrated into the financial execution app's now, and
reporters with inside knowledge of even say 1 minute before a story hits, one would have to
be a blooming retard to think that they aren't selling this information to the HFT'S etc who have
money to lay fiber optic cable from Chi-town to NJ for a millisecond of speed.
Chase the real thiefs, the real corruption, not something that is part and parcel to the profession.
Stop whining about nothing and understand the business you're in and how you're getting screwed.
Just spreading some light.
Dr. E.
I gave ya a down arrow for your icon. Everything after that seemed a waste of time.
The handle seems like a misspelling of "Excrement"
Tell me again what benefit currency traders provide to humanity?
"Tell me again what benefit currency traders provide to humanity?"
To syphon off the excess in order to trick the system into generating even more surplus.
You know, just like they use leaches to bleed people in order to heal them.
SOME provide much. Not all - but some.
Strange question to ask, given FX appears to be just about the only area the OP hasn't worked.
But the answer to the question is: they provide liquidity and price discovery.
This is one of my favorite things about ZeroHedge. Everyone agrees the market is rigged, yet the Tylers constantly post charts of the rigged market and everyone will discuss their meaning in great detail, like witch doctors hovering over chicken bones.
It's a story, isn't it?
Hmmm, I don't watch CNBS, but can anyone tell me if this has been discussed on same said station? (Do I need to add sarc.)
Buy the rig.
I think you should read between the lines friend and ride the Futures /CL contracts in the direction that they are rigged. I have a couple of great weeks playing these contracts thanks in part to this site.
Thank you Zerohedge and all those who support and comment.
Thanks but I don't play rigged games. There is no predictability, it's just casino gambling and the House holds all the good cards. The rug can be pulled out from under me at any moment.
Diversified passive income streams are preferable, and I don't need the excitement of short-term trading at my age.
It's fine for you youngsters though, rock on.
Barracuda Networks classifies EconMatters as spam.
I cant wait until they let me only read CNBC for market material.
Change your DNS Server Settings, I use the Swiss Privacy Foundation servers. Google it if you don't know how (using startpage.com of course)
http://www.privacyfoundation.ch/de/service/dns-sperren.html
Use these IP Addresses:
77.109.138.45
77.109.139.29
There is a stage prior to that: you are strapped to a chair and forced to recite aloud the last 50 posts of "Marc to Market".