What Data Points Are Most Critical for a Surveillance System to Detect “Spoofing”?
Spoofing is the practice of placing large, non-bonafide limit orders (bids or offers) to mislead other traders about supply or demand, and then canceling them just before execution. Critical data points for detection include the ratio of orders canceled to orders executed , the time duration the orders were active, the distance of the orders from the best bid/offer , and the account's subsequent trading activity after the cancellation.
High cancellation rates far from the market are key flags.
Glossar
Data Points
Data ⎊ Within cryptocurrency, options trading, and financial derivatives, data represents the raw material underpinning analysis and decision-making; it encompasses a spectrum of observations, measurements, and transactions that inform models and strategies.
Non-Bonafide Limit Orders
Tactic ⎊ Non-bonafide limit orders are a manipulative tactic involving the submission of large-volume orders into the order book for crypto derivatives or options with the express intention of canceling them before execution.
Subsequent Trading Activity
Execution ⎊ Subsequent trading activity, within cryptocurrency and derivatives markets, represents the order flow and price discovery occurring after an initial trade or market event.
High Cancellation Rates
Volatility ⎊ Elevated cancellation rates within cryptocurrency derivatives, options, and related financial instruments frequently correlate with heightened market volatility.
Surveillance
Detection ⎊ Surveillance within cryptocurrency, options trading, and financial derivatives centers on identifying anomalous activity indicative of market manipulation, fraud, or regulatory breaches.