How Does ‘Order Book Spoofing’ by Some HFTs Distort the Perceived Bid-Offer Spread and Liquidity?

Order book spoofing is a manipulative tactic where a trader places large, non-bona fide limit orders on one side of the book (e.g. a large bid) with the intent to cancel them before execution. This artificially creates the perception of deep liquidity and a tighter spread, luring other traders to transact.

When the large orders are canceled, the true, wider spread and shallower liquidity are revealed, often resulting in unfavorable execution for the victim.