How traders trick the market

What is crypto spoofing?

Crypto spoofing is a market manipulation tactic in crypto where traders try to mislead others by placing fake buy or sell orders to influence a cryptocurrency’s price.

Picture this: A trader places a massive buy order for Bitcoin (BTC), creating the illusion of strong demand. This move might entice other traders or trading bots to jump on board, anticipating a price surge. 

But here’s the twist: Once the price starts climbing, the trader pulls the rug out from under everyone by canceling that fake order and cashing in on their own Bitcoin at the inflated price.

Instead of genuinely wanting to trade, spoofers aim to create a false sense of market sentiment, either bullish or bearish, to trick others into making moves that benefit them. Spoofing in cryptocurrency trading is often hard to detect in real time and can confuse both human traders and algorithms relying on order book data. While illegal in traditional finance, crypto markets still struggle with this deceptive practice.

How spoofing works in crypto

Crypto spoofing takes advantage of the digital asset market’s emotional nature and fast-paced price changes.

Since cryptocurrencies are known for extreme volatility, even small market signals can influence prices within seconds. Spoofers exploit this sensitivity by placing large fake buy or sell orders to create the illusion of strong demand or selling pressure, without any intention of letting those orders go through.

When traders or bots see these orders, they may assume a price shift is coming. For example, a wall of buy orders might convince others that the price is about to rise, prompting them to buy in early. Once the price increases as planned, the spoofer cancels the fake buy orders and sells at a higher price. The reverse works, too, as fake sell orders can cause panic and push prices down, allowing the spoofer to buy cheap.

This strategy works particularly well when markets fluctuate and investor behavior is driven by emotions, such as fear of missing out (FOMO) or fear, uncertainty and doubt (FUD). 

Automated trading bots that depend on order book signals are especially susceptible to spoofing since they can respond to big orders right away without doubting their validity. It also fuels unnecessary volatility, especially when spoofed liquidity affects decisions on large…