The main investor thread includes a lot of chatter about price manipulation, so I thought a dedicated thread could be useful.
Here's a recent article to kick off the discussion. This is about metal trading, but the technique seems more general so I hope it sheds light on how manipulation might work.
JPMorgan Chase faces a fine of $920m for market manipulation
Here's a recent article to kick off the discussion. This is about metal trading, but the technique seems more general so I hope it sheds light on how manipulation might work.
JPMorgan Chase faces a fine of $920m for market manipulation
[...]
The traders are alleged to have used “spoofing”, a ruse where a marketmaker seeking to buy or sell an asset, like gold or a bond, places a series of phoney orders on the opposite side of the market in order to confuse other market participants and move the price in his favour. A trader trying to sell gold, for instance, might place a series of buy orders, creating the illusion of demand. This dupes others into pushing prices higher, permitting the trader to sell at an elevated price. Once accomplished, the trader cancels his fake orders.
The practice was explicitly outlawed in America in 2010, but the rise of algorithmic traders—which rapidly analyse order books to work out where prices might move next—has made it more tempting for human traders to spoof them. According to prosecutors one JPMorgan trader described the tactic as “a little razzle-dazzle to juke the algos”. In the past two years Deutsche Bank, HSBC, Merrill Lynch and UBS have all paid penalties on spoofing charges.
Though JPMorgan’s case shares similarities with past infringements, regulators and prosecutors have also become tougher. The penalty meted out to the bank is the largest ever for spoofing. The Department of Justice (DoJ) said that when it considered the appropriate punishment it took into account the fact that JPMorgan had pleaded guilty to manipulating foreign-exchange markets in 2015, suggesting that repeated offences would be punished more severely.
[...]
The traders are alleged to have used “spoofing”, a ruse where a marketmaker seeking to buy or sell an asset, like gold or a bond, places a series of phoney orders on the opposite side of the market in order to confuse other market participants and move the price in his favour. A trader trying to sell gold, for instance, might place a series of buy orders, creating the illusion of demand. This dupes others into pushing prices higher, permitting the trader to sell at an elevated price. Once accomplished, the trader cancels his fake orders.
The practice was explicitly outlawed in America in 2010, but the rise of algorithmic traders—which rapidly analyse order books to work out where prices might move next—has made it more tempting for human traders to spoof them. According to prosecutors one JPMorgan trader described the tactic as “a little razzle-dazzle to juke the algos”. In the past two years Deutsche Bank, HSBC, Merrill Lynch and UBS have all paid penalties on spoofing charges.
Though JPMorgan’s case shares similarities with past infringements, regulators and prosecutors have also become tougher. The penalty meted out to the bank is the largest ever for spoofing. The Department of Justice (DoJ) said that when it considered the appropriate punishment it took into account the fact that JPMorgan had pleaded guilty to manipulating foreign-exchange markets in 2015, suggesting that repeated offences would be punished more severely.
[...]
