How Does the Use of “Spoofing” and “Layering” Distort the True Supply and Demand in an Order Book?

Spoofing involves placing a large, non-bona fide order with the intent to cancel it before execution. Layering is a form of spoofing where multiple orders are placed at different price levels.

Both tactics create a false impression of high supply or demand, misleading other traders into executing orders at unfavorable prices. Once the market reacts, the spoofer cancels their fake orders and executes their real trade at the manipulated price.