Post by Deleted on Apr 23, 2015 14:14:28 GMT -6
Source:
There are many types of spoofing, but it is pretty much a script or software that creates a situation where the person or program acts like somebody or something else. In most cases as computer users we see spoofing in emails where they ask you to log into a paypal account for example and the page looks just like paypals and the page captures your user name and password so a hacker can access your account later. Sometimes it could be days, or weeks because it call all be automated. Even to the point where they have gained access to another computer and they set up the spoofing page, capture your info and it emails the hacker for later use.
This is basically something I said in another post about the equity market in level 2 for day trading. It applies here if you haven't tried it before, image a digital list of buyers and sellers offering to buy and sell a stock. When someone like Goldman Sachs comes along and offers 20,000 shares of Microsoft for sale just below market price of 43.35 at 43.32 a share. Even if no one buys the stock the fear factor is when a player the size of GS wants to sell 20,ooo shares of MS something is up we better get out of ours right now, so you drop you share price take a little hit but didn't lose big.
Meanwhile GS then turns around and starts buying the price drop by the thousand. Simplified yes but I have seen it. This is what this guy did but was doing it with futures, he was spoofing several sell orders driving the price down then buying the price drop and reselling a very short time later.
He was allowed to do this because you can't differentiate in some cases who is who when buying and selling so quickly. It is difficult when your literally moving 100's of millions a minute around the world. This is why the real mathematicians work for wall street, spotting trends before anyone else with statistical algorithms makes money, big money specially on an automated system. So if your a very smart guy you can sit in a small house in London and spoof the system to look like a major player. If you're a not so smart guy you do it and don't move so when they come looking for you 5 years later you're still home.
"Market watchdogs would not have expected the source of the “flash crash”, as it came to be known, to be a lone trader based in a nondescript semi-detached house in Hounslow, an unfashionable suburb nestled between central London and Heathrow airport. But they would be less surprised by the methods he is accused of using, most notably “spoofing”, a common form of market manipulation."
"According to the charge sheet, Mr Sarao would routinely place a series of orders to sell futures contracts that would only be profitable if the S&P 500 share index fell. The authorities claim that a computer programme he devised constantly tweaked the price of his orders to ensure he wasn’t taken up on them. The effect, nonetheless, was to inject pessimism in the futures market, by making it look like lots of investors were expecting prices to drop. (Part of this bearishness spilled over into the stockmarket, causing shares to fall in price.) Mr Sarao, it is claimed, used this as an opportunity to buy cheaply. Merely cancelling the sell orders would then have caused prices to perk up again."
Meanwhile GS then turns around and starts buying the price drop by the thousand. Simplified yes but I have seen it. This is what this guy did but was doing it with futures, he was spoofing several sell orders driving the price down then buying the price drop and reselling a very short time later.
"That Mr Sarao might be even partly to blame will only add to the alarm the flash crash engendered. Many will ask how a single day-trader could possibly have been allowed to generate $200m of selling orders, over a fifth of the daily volume in the contract he favoured, during a period of known market convulsion without having been blocked by one party or another. The financial watchdogs will also have questions to answer. The most pressing of them will be, if a trader from Hounslow can cause the S&P 500 to crash, who or what else could do the same—or worse?"