Which market manipulation technique involves placing large orders with no intention to execute in order to influence prices?

Which market manipulation technique involves placing large orders with no intention to execute in order to influence prices?

• A. Market making to provide liquidity
• B. Spoofing/layering
• C. Arbitrage across venues
• D. Not deleting quotes

Answer: (B)

Spoofing and layering involve placing large orders with no real intention to execute them in order to influence prices. By posting big bids or offers, a trader creates a false impression of supply or demand, prompting other market participants to react and push the price in a direction that benefits the spoofer. Once the price moves as hoped, the large orders are canceled before any trade occurs. Layering takes this further by using several orders at different price levels to make the depth look more convincing, increasing the chance that others will trade in the desired direction. This is why it’s the best answer: it directly describes the deceptive practice designed to move prices rather than to trade genuinely. By contrast, market making aims to provide liquidity with legitimate buy and sell commitments; arbitrage exploits price differences across venues without trying to mislead others; and not deleting quotes isn’t a manipulation method and doesn’t describe creating false market signals.

Spoofing and layering involve placing large orders with no real intention to execute them in order to influence prices. By posting big bids or offers, a trader creates a false impression of supply or demand, prompting other market participants to react and push the price in a direction that benefits the spoofer. Once the price moves as hoped, the large orders are canceled before any trade occurs. Layering takes this further by using several orders at different price levels to make the depth look more convincing, increasing the chance that others will trade in the desired direction.

This is why it’s the best answer: it directly describes the deceptive practice designed to move prices rather than to trade genuinely. By contrast, market making aims to provide liquidity with legitimate buy and sell commitments; arbitrage exploits price differences across venues without trying to mislead others; and not deleting quotes isn’t a manipulation method and doesn’t describe creating false market signals.