Spoofing and layering in a market with no central book

[Fairman]

Spoofing and layering in a market with no central book

Spoofing means placing large orders with no intention of letting them execute, to create a false impression of supply or demand. Layering stacks several such orders at different prices.

In futures markets, enforcement actions have made the practice well known. Spot forex is different: there's no single order book, so the tactic works only on specific venues and platforms where participants can see each other's resting orders.

Retail traders rarely see this, since their view is of the broker's aggregated feed. But the effects can leak through. A price that repeatedly rejects at a level with large displayed size, then falls through when the size disappears, is a familiar pattern on electronic venues.

On a retail depth window, the size shown at each level can be real, or it can be decorative. A big block that vanishes when price approaches proves nothing about intent, since legitimate liquidity providers also pull quotes when risk rises.

The healthy attitude is skepticism about displayed size. What counts is what trades, not what's shown.

Large displayed size at a level: does it stop price, or vanish when tested?