Crypto spoofing is a method used by criminals to intentionally influence the price of digital currencies by creating fictitious orders. The sole way out for creating spoofing in the market is by exaggerating a delusion of pessimism or optimism. Typically, investors will place large purchase or sell orders through BitcoinEra without intending to register them.
The main objective behind spoofing is to trick investors’ interest in the trade of cryptocurrencies. Using this approach, when an investor is tricked, the prices related to the virtual currency are modified accordingly. Once the crypto prices move in the desired direction, the investor cancels the orders.
Cryptocurrency Spoofing – Working?
Cryptocurrencies are highly volatile in nature and it is the aspect nowhere hidden under the stones. In the early days, price fluctuation was considered the most significant and continuous concern; however, unfortunately, this issue is yet to be addressed.
Another feature that sets cryptocurrencies apart from conventional cash is their extremely volatile character. Cryptocurrency fluctuations do not occur on a weekly or monthly basis like they do with fiat money. In reality, if prices are rising, they may start to decline the following instant.
Numerous cybercriminals, including hackers, attempt to take advantage of this ambiguous disadvantage. They attempt to purchase overly sought-after tokens while the cost of a particular token or coin is too low. But as soon as the cost increases, people start selling those coins and tokens.
For all tradable exchanges, the value of any token or coin is based on several factors. This also includes the pessimism and optimism factor that creates a huge impact on the market and investors. In these circumstances, cryptocurrency may be challenging to quantify, and it is something highly attuned investors can understand.
It is a pure fact that the factors related to optimism and pessimism have a genuine influence over spoofing. By generating fictitious orders, traders try to create chaos in the market, which leads to increase of prices.
Wash trading frequently occurs in conjunction with spoofing – in that it seeks to artificially affect the prices of digital currencies. Wash trading involves a criminal dealing with themselves to fictitiously create market demand, leading unwary traders to make the trades. Spoofing and wash trading have distinct implementation techniques, though.
How to Avoid Cryptocurrency Spoofing?
An attempt to find out the cryptocurrency spoofing is not easy. A person can see typically huge orders in order books without knowing whether they are legal. One of the suitable methods to avoid crypto spoofing risks is to avoid crypto exchanges that are popular to operate in secrecy.
Take an example of a crypto exchange like Gemini (U.S.A) that has requested the assistance of the Nasdaq exchange to manage the suspicious activities, which helps to remove the fraudulent practice.
You can continue your trading activities with a strong understanding of skepticism. Whenever you find order books that seem too perfect, there can be more probability of spoofing. Indeed, precautions should always be valued generally when you are going to invest in unregulated markets.
You may also observe the order books for many days before starting the trade to see whether there is any proof of spoofing. If the order books quickly change or suddenly disappear & reappear continuously, then you need to be suspicious that some spoofing is in process. Perhaps it is better to avoid that particular exchange entirely if spoofing has been observed. You can never be confident that you will get the small end of the stick from investors with more technical resources and assets than you.
It may also happen that even if they do not catch you by using techniques like spoofing, they may use other legal tactics to poke you, like cryptocurrency stop-loss hunting. Indeed, some of the best means you can use to avoid the spoofing risk is that you only use those crypto exchanges and platforms that are the most reliable.
Conclusion
Cryptocurrency exchange spoofing/layering/wash trading are a few forms of market manipulation that are the reasons to lessen the popularity of crypto. Whether you become a victim of spoofing depends on your approach to cryptocurrency trading.
If you are the single trader who buys & holds crypto, then the presence of buying or selling walls cannot change your view. However, if you are an informed trader who trusts market signals that alarm your positions, you must always be aware of the risk of being manipulated.
