April 09, 2021

What is Spoofing in the Crypto Market?

The situation when manipulators try to influence the price of a cryptocurrency on the exchange is not unusual. You bet! Everyone knows that this market is not controlled by anyone. Consequently, the fight against fraud falls on the shoulders of traders (or the platform). With that said, let's talk about one very interesting tool - spoofing. Let's get started.

Spoofing on the Crypto Exchange - What Is Really All About?

Traditionally, we start with the definition. Translating spoofing into plain English, it is the form of market manipulation when a trader places a large order to buy or sell an asset with no intention of executing. Sometimes the amount of orders reaches up to $ 60 million.

So, keeping all this in mind let’s aim to answer this simple question: why? By placing a large number of orders, users try to create artificial demand and raise the price of the currency. They immediately cancel the orders, but traders manage to “rock” the prices. As a result you only have to sell the real asset at an inflated price and make money on it.

Is it Legal?

When it comes to classic trading, the answer is no. Despite this, spoofing is quite common in the digital space.

Where Does the Name Come From?

According to one version, spoofing  is derived from the word "Spoofy" — the name of one of the users of Bitfinex. He artificially tried to influence the price of assets.

What Is the Danger of Such a Tactic? 

When a large order appears on the crypto exchange, traders perceive it as a wake-up-call. They start selling or buying coins before the price changes. The bad guy places real orders together with fake ones. It allows him to profitably sell or buy coins.

Can I Fight Spoofing?

Yes, you can and you should! Fortunately, there is special software that tracks a large volume of orders. Regulators, in turn, monitor users ' mail, apply mathematical and statistical methods.

Usually, platforms fight against spoofing by introducing various restrictions. However, the most effective method to combat this phenomenon is to buy back bids. This helps to clear the market of false orders, and protect users from sharp swings in prices.

Here's a fun fact for you people: although no service is immune from spoofing, it is most often observed on the Bitfinex exchange. There is an assumption that the trading platform manipulates cryptocurrency on purpose, conducting such attacks and laundering tokens. They say it does self-selling for the price manipulation. Once again this is just a suggestion. We do not doubt the innocence of the platform, not for a second :)

Bottom Line

Virtual space is a natural habitat for scammers, so  be vigilant and be safe. Sorry to destroy your worldview, but any money-related activity attracts dishonest people. Unfortunately, trading is no exception. However, now you know what spoofing is, and most importantly, how to deal with it. Good luck!

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