Spoofing and the Flash Crash – Six Things You Need to Know
Charges against a UK futures trader accused of manipulating the U.S. futures markets has ignited debate on whether “spoofing” was a contributing factor in the 2010 Flash Crash in U.S. stocks. In the entertainment field, you often watch a spoof on Saturday Night Live, but the consequences are usually innocuous. In computerized financial markets, spoofing generates a lot of “noise” in the market, and can be far from innocuous. It’s meant to trick market participants into trading based on quotes that, while actionable, are designed to move the market in a direction favorable to the spoofer.