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What is Spoofing? What Every Crypto Trader Must Know To Protect Their Money

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Written by Ben O’Hanlon

Everyone who puts money into cryptocurrency can see that the costs of coins are being manipulated. Unlike regulated security exchanges, there are very few checks and balances in place to combat price manipulation.

When you are trading any cryptocurrency, it is essential that you comprehend the most widely recognized strategies of price manipulation. It’s imperative to see, so you don’t fall prey to this strategy.

If you do fall for it, you’re very likely to make emotionally driven decisions when you’re trading, and after the bad decisions you end up losing everything.

Spoofing is the most widely recognized and successful strategies of price manipulation. Spoofing isn’t legal on the NYSE or Nasdaq, but it’s not illegal yet in the cryptocurrency world. Even though it is illegal on major exchanges, people still try to spoof there because it’s so effective in controlling the market.

If you’ve ever looked at the order book on an exchange while trading any cryptocurrency you’ve observed spoofing whether you’ve realized it at the time or not.

What is spoofing?

Spoofing is when a group of people with a lot of resources behave in unusual ways in the market to control the cost of a coin to keep it in a specific price range.

They place large sell orders on the order book just under market value, to create a systemic market reaction to make the price drop.

The large sell orders usually cause panic in the other sellers so they lower their price even lower than large sell order so they can get rid of their coins.

Then the general market wants to get rid of their coins because, with a large sell order on the order book, it appears that a lot of people are suddenly dumping the coin and that it’s going to crash in value — FAST.

The group of spoofers removes their large sell orders at the very last minute before their orders are completed.

They eventually stop placing larger sell orders on the order book once the price is falling the way they intended it to drop. Once the price is where they wanted it to be, they can load up on coins at a discounted market rate.

However, if the price is falling too quickly, they can put huge buy orders on the market book above the market price to induce a FOMO (fear of missing out) reaction with the market buyers.

When large buy orders are on the order book and above market price this makes it appear to other buyers that the price is going to skyrocket.

However, the key to spoofing is the spoofers successfully remove their buy orders before they are actually executed in the market.

The entire point of spoofing is to ensure that the spoofers aren’t losing any money but that they are profiting off of the general market behavior because they successfully toyed with their emotions.

If a spoofing strategy is executed flawlessly, spoofers can completely control the price range of a coin.

What do spoofing patterns look like?

Spoofing patterns usually work this way:

Move cost down– purchase coins

Move cost up — sell coins

Move cost down rapidly– load up on coins

Move cost up rapidly– dump your coins

How do you protect yourself against spoofing?

The ideal approach to prevent losing your money to spoofing is to have an understanding of their strategies and what they look like while they are occurring in the market.

It all may seem crazy if you didn’t know there was manipulation in the markets before reading this article. But like Morpheus says to Neo about an alternate reality in the 1999 movie, the Matrix, “I’m trying to free your mind, Neo. But I can only show you the door. You’re the one that has to walk through it.”

You probably knew something wasn’t quite right before learning about spoofing, but now it’s up to you to successfully execute your market behavior after learning this information.

You have to remain calm during a spoofing attack, and stick to your overall strategy. You can also try to buy and sell crypto coins along with the spoofers, but sometimes you can fly too close to the sun.

Spoofers have an enormous amount of funds to manipulate the market in many different ways. You may think you know what they’re going to do, but miscalculate it and then lose money anyway.

Keep in mind forget that there are two types of losses: paper losses and real losses. Real losses only happen when you execute an unprofitable trade.

You need to have a strong methodology of when you will enter the market and when you will exit before you even put your money into any cryptocurrency. Now that you know about spoofing, it’s up to you to not fall for it.

We’ll be sharing more posts like these on the cryptocurrency as we launch https://www.formosa.financial/ an institutional grade custodial service for high net worth traders, businesses and their complex needs. Feel free to tweet

Source – https://medium.com/formosa-financial/what-is-spoofing-what-every-crypto-trader-must-know-to-protect-their-money-93706818340a

About the author

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Ben O’Hanlon

As a writer, journalist, teacher and consultant, Ben has experienced lots of things. He believes in the idea that words can change the world. He currently resides in Ireland. He loves his family and says the thing that comes next to the family for him is his passion for writing.