Understanding Spoofing in Finance

Spoofing is an action that allows large traders to control the market by placing large orders at key support and resistance levels.

It is common to talk in the crypto space about how some whales buy uniswap and other large-cap cryptos to influence the market. Although several of these arguments can be debated, there are proven techniques that can cause market manipulation due to a trader’s large holdings. The most prominent of these methods is called spoofing.

Spoofing isn’t restricted to cryptocurrency as it is widely observed in the stock and commodities markets. Traders go about spoofing by leveraging bots to make big buy or sell orders. The moment these orders are about to get filled, the bot receives a pre-programmed instruction to cancel the order.

Crypto markets work as a result of demand and supply trading pressure. Spoofing allows traders to get the idea that authentic buying and selling is happening in a specific market. Meanwhile, in reality, the crypto asset might be illiquid.

How Spoofing Tricks Buyers and Sellers in Financial Markets

Participants in a financial market usually get tricked by spoof orders since there’s no practical way to distinguish between real and bogus orders. Spoofing usually works in a market if the buy or sell order is placed around levels that other traders are watching, like support and resistance regions.

For instance, Bitcoin could be trading at $18,000 with a significant resistance level of around $20,000. Resistance is a term used in technical analysis to depict a region that the price level cannot seem to break. In this example, it means that Bitcoin had tried to get past the $20,000 price without much success.

Usually, when traders spot a resistance level, they set sell orders to profit from the market. However, another set of traders take risks and buy at resistance levels to tap into possible profits. If spoofing occurs at the resistance level, traders will believe that the price will not be able to break past the level. Thus, there will be a lot fewer buy orders, and this leads to a manipulation of the market.

Periods When Spoofing Doesn’t Work Efficiently

The risk for spoofers becomes greater when there’s a high probability of market volatility. Using the Bitcoin $20,000 resistance example, there might be a strong upward rally if there are spoof orders at the resistance region.

If traders get hit with the fear of missing out (FOMO), this could drive volatility and cause spoof orders to get filled. This is an adverse situation for the spoofers who never intended to enter those trading positions.

In the cryptocurrency market, this usually happens when spot market traders are driving an upward rally. When more traders are convinced that a crypto asset’s price will shoot up, spoof orders at resistance will have much less effect on stopping the buy orders.

The Legality of Spoofing

In several financial markets like the UK and US, the law deems spoofing illegal. The US Commodity Futures Trading Commission (CFTC) is required to identify and prosecute spoofing activities in the US markets. It could be difficult to classify an order as spoofing since traders usually make and cancel many of their orders naturally.

However, when the activity gets repeated severally, regulators would look into the traders for possible spoofing. The necessary actions ranging from fines or inquiries, could then be set into motion.


The actions that whales take in the crypto market are usually a hot topic of discussion. Nevertheless, spoofing is one of the key techniques used to manipulate the market. Spoofing is an action that allows large traders to control the market by placing large orders at key support and resistance levels.

Spoofing might go the wrong way if a market is experiencing high volatility and traders don’t take much note of the existing orders at the key price levels. The action is illegal in the US and UK and could attract fines and inquisitions.