Spoofing and layering in retail depth: real or perceived

[Shadow Trader]

Large resting orders that appear in the order book and vanish when price approaches are called spoofing. The intention is to give a false impression of supply or demand and trigger reactions from other participants.

In regulated futures markets, spoofing is illegal and prosecutions have occurred. In spot forex, which is less regulated, there's less enforcement and the visibility is poorer.

Retail traders looking at a depth window sometimes see large orders appearing a few levels above the price and disappearing as the price moves closer. It might be spoofing, or it might be a liquidity provider updating quotes, or an automated system adjusting risk.

Whichever it is, the practical conclusion is the same: orders that disappear when approached shouldn't be relied upon as support or resistance. Only orders that get hit and hold, which absorb real trades, show genuine interest.

Watching the book for a few weeks without trading on it builds a feel for which patterns are noise. The cases where a large order stays while the price hits it repeatedly are rarer and more informative than those that vanish.

Is anyone able to say with confidence that spoofing is visible in retail FX depth data?

[Amanhasnoname]

I watched a depth window on my broker's platform for a few weeks before I ever traded off it, and I'd say I can't tell spoofing apart from normal quote updates with any confidence. I saw plenty of big orders appear a few levels away and vanish as price came near, but the same thing happens when a liquidity provider just refreshes its quotes.

What I can say is that relying on those orders as support was a mistake for me. Early on I placed stops just behind what looked like a wall of bids, and more than once the wall evaporated a pip before price reached it and my stop went with it.

The only thing in the book I came to trust was size that actually traded and stayed. When price hit a level repeatedly and the order kept refilling, that told me someone real was there. Everything else I now treat as decoration, whether it's spoofing, risk management or simply a quote engine doing its job.