How Does “Spoofing” by HFT Firms Artificially Affect the Perceived Order Book Depth?

Spoofing is a manipulative practice where a trader places large, non-bonafide limit orders on one side of the book with the intent to cancel them before execution. This artificially creates the perception of deep liquidity or strong buying/selling pressure.

Other traders, misled by the fake depth, may place market orders, which then incur high slippage when the spoofed orders are canceled, revealing the true, thin order book. Spoofing is illegal market manipulation.