Spoofing and Pinging in Foreign Exchange Markets
41 Pages Posted: 1 Nov 2018
Date Written: September 13, 2018
This paper investigates the susceptibility of FX spot markets to limit order submission strategies that are either intended to create a false impression of the state of the market (‘spoof orders’) or to extract hidden information in the market (‘ping orders’). Using a complete limit order book dataset from EBS, we study currency pairs that have mature algorithmic markets (EUR/USD and USD/JPY), as well as other G10 and emerging market currencies where EBS is used as a secondary electronic trading platform (EUR/SEK, USD/RUB and USD/TRY). Our results, indicating that EUR/USD and USD/JPY are highly sensitive to information-rich orders, suggests that spoofing tactics might be more dependent on the chosen electronic trading venue, rather than the overall market liquidity of the currency pairs. Furthermore, we find widespread adoption of pinging tactics in the EUR/SEK and USD/RUB markets.
Keywords: market microstructure, limit order book, foreign exchange, high-frequency trading, manipulation, spoofing, pinging, stealth trading
JEL Classification: D4, F3
Suggested Citation: Suggested Citation