Spoofers be spoofing since spoofing been spoofing

flipper_3

There is good cause for the skepticism of the arrest of a UK trader in his parents basement for causing the flash crash as written here by Michael Lewis:

http://www.bloombergview.com/articles/2015-04-24/michael-lewis-has-questions-about-flash-crash

I started in a very active trading room, many of whom were ex-market makers where I first saw something like this in action. Spoofing has been around a very long time. In fact, one might say that Jesse Livermore used this type of strategy in “Reminiscence of a Stock Operator” when he was executing large orders. I haven’t read it yet but I was told to read “Evil Genius of Wall Street” about Jay Gould, an old time robber baron that also used a form of spoofing.

More interesting, I remembered a story of a guy known as “The Flipper” who allegedly made something like $50-$60MM spoofing the German Bund futures (he only claims to make > $5MM per year) and did about 180,000 cars/day ($70B notional) according to an interview in Trader Monthly circa 2005ish?

His strategy was described like this in an old forum post back in 2005:

He places massive size to run the market like 6000 bids and offers in the bund. Sell 100 into his 6000 bid and all of a sudden it’s 6000 offered. Buy another 100 into that offer and hey presto back bid 6000. Occasionally he gets rumbled like last week when the hedge funds came into the bund on the back of GM and ford and took out 7 prices of these ridiculous orders in one trade. All of a sudden the orders were down to 2/300 lots in the whole book. Whoever got taken got a shock. This type of trading only works in quiet markets when paper isn’t about. The flipper is no longer much of an issue as plenty of people match him in size and clip him in one go but a few months back he had the market in the palm of his hand.

Here is the Trader Monthly article:

paul-rotter-trader-monthly

Digging a bit deeper I found this quote from him:

Now you have the FBI investigating algorithmic trading because what the algorithmic traders do is market manipulation, but somehow it is legal. If I put in orders and then cancelled them, I could be accused of market manipulation. But they do it in micro-seconds at the rate of 100,000’s of times a day, putting in and cancelling orders, and no one really stops them.

So for these reasons I am now doing more mid- to long-term trades in a variety of markets and I don’t just concentrate on my core markets (bonds) which I was doing until I stopped short-term trading.

https://mahifx.com/blog/an-interview-with-paul-rotter-adapting-to-survive

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~ by largecaptrader on April 24, 2015.

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