Define ‘Spoofing’ and Its Relation to Derivatives Trading

Spoofing is a manipulative trading practice where a trader places a large order with the intent to cancel it before execution. The purpose is to create a false impression of supply or demand, misleading other traders and causing the price to move favorably.

In derivatives trading, spoofing is often used to manipulate the price of the underlying asset, which in turn affects the derivative's price. A spoofer can profit by taking a position in a futures or options contract and then spoofing the spot market to push the price toward their profitable strike or settlement price.