I wonder if it would be possible to "piggyback" on that, and when you see a spoofing attempt, issue a certain order. Your advantage would be to know that their order is fake and will likely be canceled.
Furthermore, would that be legal? You are just using publicly available information.
Because the spoofing party already knows what is going to happen as soon as you react to such an order, even by using a bot, you are already too late. Most bitcoin exchanges are not very quick, so you can expect a latency of about several seconds which is too long to even anticipate on this.
I would even argue that you have a point here. But the example is one where centralization through exchanges is the actual problem, not decentralization. Maybe find another example?
I'd rather say that at least the main issue of the author - that Bitfinex are abusing their position - would not be an issue with decentralized exchanges.
Surely the real cause was systems actually selling shares at a penny. Seems dishonest for people to write buggy platforms then blame someone else for their own incompetence.
I don't think it's that easy. There's a time and currency cost to transferring coins between wallets so that's not a good idea.
Instead you'd need to keep large balances in multiple exchanges and then sell coins on the more expensive, buy on the cheaper, and then through the power of algebra, you may make a profit? maybe. Since the direction/stability of the market isn't known you don't know who's the dog and who's the tail. Does it matter? Yes. If the market is genuinely trending and you have the insights to exploit arbitrage, there's better strategies than arbitrage available to you.
But here's a different, more exploitable model. Pretend two exchanges had price X. And you know for a fact you can make one X-1 temporarily and you can make the other X+1 temporarily ... and then they will elastically close back to X in a predictable time Y.
So you "stretch" the exchanges, do the scheme described above, in volume, and all things being equal and nothing else dramatically affecting the market, they will eventually snap back like a rubberband. Since you aren't pushing everything the same direction, you probably won't trigger a trend.
Now you have USD in the +1 account and BTC in the -1 account so you stretch it the other way and repeat.
This is a much better strategy since you are essentially bending the delta back and forth and exploiting it each time.
Also this strategy, which I'll call twanging, is generally strongly knowable. A reliable, repeatable, predictable, strategy with a profit>0 is almost always worthwhile independent of the profit amount because the other factors, risk and predictability, have been reduced to effectively zero.
Also the time to twang is probably on the order of an hour.
So you permute around the markets all day long, picking new tuples in some shuffled sequence and you have a reliable profit machine at scale.
This is all theoretical of course - I'm not actually whaling around with $100mil USD in assets spoofing markets. Like most trading strategies, it's likely nonsense.
I would posit that it's different people at different times trying to move the market in a direction favourable to them, but it's a case of caveat emptor, once people realise these things are happening they are safe against them.
Why exactly is spoofing illegal? How do you differentiate legitimate order canceling from spoofing? Trading is very emotional process. You place order, 5 minutes later you decide to cancel it, 10 minutes later you decide to place another order.
I think it doesn't make any sense for this kind of activity to be illegal, and I don't see much wrong with it. It would be impossible for exchanges to differentiate between spoofing or legitimate trading anyway.
I would assume 5 minutes is ok; do it within seconds or fractions of seconds and it becomes an issue. Bots (and a few eagle eyed traders) see the signal and start buying, you withdraw the order with very little of it having been filled, and have potentially jump-started a price spike. You then sell, wait a bit, repeat. You're conning people into thinking you're about to buy and when they get excited, you turn around and start selling.
I agree. If you play the game better than others why should that be ilegal? I understand the argument that it harms the normal process of price discovery, bit I don't think that making certain inputs to a system should ever be subjectively evaluated into a crime.
Intent. How do you differentiate hacking from legitimate access? You're just sending byte streams to the server and it decided to give you access to something, after all.
The reason it's illegal or banned on normal exchanges is because it drives out legitimate customers and you end up with a den of thieves. Everybody looks at the order book to gauge liquidity and make decisions, not just bots. Users want prices to be relatively stable and tied to fundamental values. An exchange where manipulators spoof or wipe the order book in a high stakes game of chicken is unstable. Imagine an eBay with no protections against counterfeit goods, or a StubHub full of fraudulent tickets.
And spoofing is very easy for regulators to detect. The behaviors of market makers, who also cancel many orders, and spoofers, could not be more different. Market makers place orders for small symmetric size on both sides of the book. If they quote asymmetric sizes, they quote smaller bids when they're long, or smaller offers when short. They cancel bids after they buy, offers after they sell. Spoofers do the exact opposite. They place asymmetric sizes where one side makes up a large amount of liquidity. They place big size on the same side when long or short to press their trades favorably. They cancel buys after they sell, and sells after they buy.
The title and the sensationalist wording of the article is complete nonsense.
Yes, placing a large order might be interpreted as a signal by some traders and it might be possible to take advantage of that.
But that does not mean somebody dominates the price of Bitcoin. By the same logic you could say that HN posts dominate the price of Bitcoin because some traders might use them as a signal.
This article is a boldface warning about Bitcoin, but not necessarily in the sense intended. If we're scandalized by the very mild trading behavior described, we are in way over our heads in any kind of market at all.
I don't really strong sense as to the fate of bitcoin but I think about the fact that it survived the Mt. Gox disaster. This is something far less scandalous.
I agree that the Mt Gox failure was much worse than what's described here. But as a possible sign of things to come it gave me the same feeling this does. (The feeling that a lot of people are in way over their heads.)
To anyone who's been involved in normal financial markets, Mt Gox had pretty clearly gone belly up months before the Bitcoin community seemed to accept that seriously as a possibility.
I'm not saying Bitcoin dies. I'm saying possibly there are a lot of Bitcoin enthusiasts who have no idea how tough the 'safe' real world of regulated markets is. Let alone this kind of thing.
Flagged because the title is sensationalist and doesn't reflect the content of the article (even if you believe the article itself). Seems much more like FUD against Bitfinex.
Even if "Spoofy" was able to dominate Bitfinex (which they couldn't with the described tactics) that would be a far cry from dominating the price of Bitcoin. There are so many more exchanges.
I started doing doing some trading for fun and profit a few months ago, and "fake walls" were very well known to all users of Poloniex (there used to be a public chat there, so I learned about those almost immediately). It's a sure thing that there are whales manipulating the market, but that's for sure not a single entity, it's not limited to bitfinex, and if you want to gamble on this bubble you have to deal with it.
If you control one large exchange you can exert control over all the exchanges. Arbitrage bots quickly buy and sell any differences between the exchanges.
Its human nature to create similar behaviours in similar conditions. Early Bitcoin anarchists who thought that they will be able to avoid "banks and governments manipulating with the money" must be really bitter to find out that manipulation is always going on, the entities in the Bitcoin world are just named different from "banks" and "governments".
If there's a competitive advantage for screwing someone over, there will be screwing over.
How I see the basic difference is, you have a choice to use Bitfinex or not. If there is an exchange that really finds a way to reduce this behavior then it would be very attractive to consumers. If the federal government and their regulators are the ones that are corrupt and doing the manipulations, there is no other choice.
Can someone tell me how is current price of bitcoin or any other crypto currency calculated, or point me in direction where I can learn more about market mechanics. Say I want to develop a toy stock market, what do I need to know ? Any good book resources ? I found this while writing my comment http://www.dummies.com/education/economics/how-to-determine-...
You have a database where people can say "I want to buy x amount item of type y for at most price z" and "I want to sell x' amount item of type y' for at least price z'". And if the database finds a match then a contract is made (doesn't necessarily mean that immediately money or product will change locations, just legal ownership changes).
For instance I say I want to buy 100 bananas for at most $500. You say you want to sell 50 bananas for at least $450. Then both our demands match and I buy 50 bananas from you for $450.
Since often there are different kind of offers from both sides not all can match and you have two lists of open buy and sell offers.
A practical detail is that if you either want to buy or sell right now you will of course create a counter offer to the corresponding top of the list of the other type and a trade happens immediately. I'm no expert but I think this is the most common kind of trade. It's a little like in a shop. You just take whatever the price tag says.
Smart people will also try to make offers close to the top of their list even if they don't want to buy immediately. But if they are too far away the trade may never happen and they pay the offer fee for nothing.
I think most of these trade platforms make money by fees. You make an offer, you pay a fee (probably a percentage of your offering price). And there's also a second kind of fee for trades that actually happened.
There are other kind of trades that basically simulate bets. And most of these terms have different names. Both of these things mostly are created to make it look more complicated and make you feel stupid.
The current price of bitcoin for instance is just the amount of $ per BTC that the last trade contained. In theory it's totally possible that the prices of two trades are totally far away, one selling BTC for $1, the other selling for $2million. But in reality due to market dynamics they often are close together and go up or down in steps.
>> There are other kind of trades that basically simulate bets. And most of these terms have different names. Both of these things mostly are created to make it look more complicated and make you feel stupid.
If it was on a single exchange sure one might then the evidence holds a lot of weight. Across exchanges, it could simply be a whale trader or a market making type algo to move the prices along.
That said, I wish bitcoin related articles get to the point quickly and tell the story succinctly. This comes off a long 13-minute rant. I gave up in between to read the TL;DR version here and then scan through the article.
This happens on all of the big exchanges. It seems to be able to generate small oscillations more than sustained price movements. Traders recognize the manipulation before it moves too far if it moves at all.
With the constant stream of negativity surrounding blockchain coins it's a wonder that anybody chooses to use them as an investment vehicle. There are so many parallels to penny stock trading in the 80's that it's uncanny.
the hype machine on the other side is massive though. you have tens of thousands of "investors" flooding every communication channel with bitcoin talking points and saying how much money they have made.
I have observed very similar behavior on Kraken. I cannot say if it's as significant as "Spoofy", but there's definitely some algo placing and canceling orders in direct response to legitimate limit orders.
It's the Wild West, which admittedly does look pretty fun at times. Interesting at the least. But I can't believe anyone really thinks that any day now, normal people are going to start using this currency.
If an exchange charges fees, it's almost certain (and 100% certain for BFX in the past) that they waive them for certain VIPs and "liquidity partners". Same for selling/giving colo access and other higher-quality data access. (Good luck getting exchanges to publicly admit any of this, though, since it scares off the prey.)
As for spoofing and wash trading... Of course. Chinese exchanges have been notorious for this (seeing 100s of orders making up 80% of book depth out to 10% disappear on 1 tick is amusing), but it happens everywhere and is definitely not a single entity. I would guess that a significant portion of this is related to algo trading and anti-algo-trading, exploiting stupid stuff like MA crossover bots. In general, wash trading is more encouraged than discouraged, since it makes the exchange appear to have higher liquidity.
Lastly, of course, there's all the exchange fuckups and oddities that have been very quietly buried due to financial incentives on both sides, like when it was possible to list arbitrarily large orders that would simply vanish once traded into. There is a long list of incidents that could be added here, some of it public but hard to find and the rest of it too sketchy to ever talk about.
If you get into this stuff without a firm understanding that nothing is real and everyone is lying to you, you're going to have a bad time.
98% of orders are canceled limit orders. The average duration an order is open ranges from 1.5 to 20 or 30 seconds, depending on the time frame you look at. The entire market is "spoofing." It's crypto not NYSE.
83 comments
[ 2.8 ms ] story [ 161 ms ] threadFurthermore, would that be legal? You are just using publicly available information.
Of course, if there is value in short-term trading (eg. adding liquidity) then this is unhealthy for Bitcoin/Ethereum.
All financial systems are a Red Queen's race.
https://en.wikipedia.org/wiki/2010_Flash_Crash
Instead you'd need to keep large balances in multiple exchanges and then sell coins on the more expensive, buy on the cheaper, and then through the power of algebra, you may make a profit? maybe. Since the direction/stability of the market isn't known you don't know who's the dog and who's the tail. Does it matter? Yes. If the market is genuinely trending and you have the insights to exploit arbitrage, there's better strategies than arbitrage available to you.
But here's a different, more exploitable model. Pretend two exchanges had price X. And you know for a fact you can make one X-1 temporarily and you can make the other X+1 temporarily ... and then they will elastically close back to X in a predictable time Y.
So you "stretch" the exchanges, do the scheme described above, in volume, and all things being equal and nothing else dramatically affecting the market, they will eventually snap back like a rubberband. Since you aren't pushing everything the same direction, you probably won't trigger a trend.
Now you have USD in the +1 account and BTC in the -1 account so you stretch it the other way and repeat.
This is a much better strategy since you are essentially bending the delta back and forth and exploiting it each time.
Also this strategy, which I'll call twanging, is generally strongly knowable. A reliable, repeatable, predictable, strategy with a profit>0 is almost always worthwhile independent of the profit amount because the other factors, risk and predictability, have been reduced to effectively zero.
Also the time to twang is probably on the order of an hour.
So you permute around the markets all day long, picking new tuples in some shuffled sequence and you have a reliable profit machine at scale.
This is all theoretical of course - I'm not actually whaling around with $100mil USD in assets spoofing markets. Like most trading strategies, it's likely nonsense.
I think it doesn't make any sense for this kind of activity to be illegal, and I don't see much wrong with it. It would be impossible for exchanges to differentiate between spoofing or legitimate trading anyway.
The reason it's illegal or banned on normal exchanges is because it drives out legitimate customers and you end up with a den of thieves. Everybody looks at the order book to gauge liquidity and make decisions, not just bots. Users want prices to be relatively stable and tied to fundamental values. An exchange where manipulators spoof or wipe the order book in a high stakes game of chicken is unstable. Imagine an eBay with no protections against counterfeit goods, or a StubHub full of fraudulent tickets.
And spoofing is very easy for regulators to detect. The behaviors of market makers, who also cancel many orders, and spoofers, could not be more different. Market makers place orders for small symmetric size on both sides of the book. If they quote asymmetric sizes, they quote smaller bids when they're long, or smaller offers when short. They cancel bids after they buy, offers after they sell. Spoofers do the exact opposite. They place asymmetric sizes where one side makes up a large amount of liquidity. They place big size on the same side when long or short to press their trades favorably. They cancel buys after they sell, and sells after they buy.
Yes, placing a large order might be interpreted as a signal by some traders and it might be possible to take advantage of that.
But that does not mean somebody dominates the price of Bitcoin. By the same logic you could say that HN posts dominate the price of Bitcoin because some traders might use them as a signal.
Bitfinex is the second largest bitcoin exchange, their daily volume is $130 million [1]. $2-4M trades are not anything out of the ordinary.
[1] https://coinmarketcap.com/exchanges/volume/24-hour/
To anyone who's been involved in normal financial markets, Mt Gox had pretty clearly gone belly up months before the Bitcoin community seemed to accept that seriously as a possibility.
I'm not saying Bitcoin dies. I'm saying possibly there are a lot of Bitcoin enthusiasts who have no idea how tough the 'safe' real world of regulated markets is. Let alone this kind of thing.
Even if "Spoofy" was able to dominate Bitfinex (which they couldn't with the described tactics) that would be a far cry from dominating the price of Bitcoin. There are so many more exchanges.
I started doing doing some trading for fun and profit a few months ago, and "fake walls" were very well known to all users of Poloniex (there used to be a public chat there, so I learned about those almost immediately). It's a sure thing that there are whales manipulating the market, but that's for sure not a single entity, it's not limited to bitfinex, and if you want to gamble on this bubble you have to deal with it.
* edited for clarity
A little sad to see that all the banking problems are still existing with Bitcoin as well.
If there's a competitive advantage for screwing someone over, there will be screwing over.
For instance I say I want to buy 100 bananas for at most $500. You say you want to sell 50 bananas for at least $450. Then both our demands match and I buy 50 bananas from you for $450.
Since often there are different kind of offers from both sides not all can match and you have two lists of open buy and sell offers.
A practical detail is that if you either want to buy or sell right now you will of course create a counter offer to the corresponding top of the list of the other type and a trade happens immediately. I'm no expert but I think this is the most common kind of trade. It's a little like in a shop. You just take whatever the price tag says.
Smart people will also try to make offers close to the top of their list even if they don't want to buy immediately. But if they are too far away the trade may never happen and they pay the offer fee for nothing.
I think most of these trade platforms make money by fees. You make an offer, you pay a fee (probably a percentage of your offering price). And there's also a second kind of fee for trades that actually happened.
There are other kind of trades that basically simulate bets. And most of these terms have different names. Both of these things mostly are created to make it look more complicated and make you feel stupid.
The current price of bitcoin for instance is just the amount of $ per BTC that the last trade contained. In theory it's totally possible that the prices of two trades are totally far away, one selling BTC for $1, the other selling for $2million. But in reality due to market dynamics they often are close together and go up or down in steps.
I had a feeling about that too :)
That said, I wish bitcoin related articles get to the point quickly and tell the story succinctly. This comes off a long 13-minute rant. I gave up in between to read the TL;DR version here and then scan through the article.
You can treat Bitcoin the same way you treat USD, there are a lot of places that accept BTC directly. Phone apps make transactions easy.
If an exchange charges fees, it's almost certain (and 100% certain for BFX in the past) that they waive them for certain VIPs and "liquidity partners". Same for selling/giving colo access and other higher-quality data access. (Good luck getting exchanges to publicly admit any of this, though, since it scares off the prey.)
As for spoofing and wash trading... Of course. Chinese exchanges have been notorious for this (seeing 100s of orders making up 80% of book depth out to 10% disappear on 1 tick is amusing), but it happens everywhere and is definitely not a single entity. I would guess that a significant portion of this is related to algo trading and anti-algo-trading, exploiting stupid stuff like MA crossover bots. In general, wash trading is more encouraged than discouraged, since it makes the exchange appear to have higher liquidity.
Lastly, of course, there's all the exchange fuckups and oddities that have been very quietly buried due to financial incentives on both sides, like when it was possible to list arbitrarily large orders that would simply vanish once traded into. There is a long list of incidents that could be added here, some of it public but hard to find and the rest of it too sketchy to ever talk about.
If you get into this stuff without a firm understanding that nothing is real and everyone is lying to you, you're going to have a bad time.