Financial Trading: They’re Still Ripping Us Off

By Shlomo  Maital

 Sarao Sarao – The Guardian sketch

Navinder Singh Sarao

  With the indictment in London’s Westminster Magistrate’s Court of Navinder Singh Sarao, we again become aware that financial traders and speculators are still ripping us off.

   A criminal complaint filed against Sarao cites a practice known as “spoofing”, used to manipulate prices and make profits.  Spoofing  involves placing orders to move the price of a financial asset.  When the price moves (up), the trader sells the asset, then cancels the original (fake) order.  Apparently this practice is widely used by some high-frequency trading firms (i.e. firms that use super-computers to spot profit opportunities and buy and sell in a micro-second, faster than a human trader can spot them). 

     The spoofing method was apparently used in 2010, May 6, to move the Dow-Jones, which plunged some 1,000 points in moments and caused huge disarray in financial markets.

     One of the markets in which spoofing occurs is the Chicago Mercantile Exchange, where traders can remain anonymous.

     The information above is reported by Nathaniel Popper, in the New York Times.

     Ordinary citizens are ripped off, because when asset prices are manipulated,  the traders doing the manipulation take the profits at our expense, as we pay more for the assets we buy than we should.

     There seems to be no end to the sleeze and crookedness in financial trading, and it is small comfort to hear they are ‘fringe crackpots’.   The problem is, nobody knows how widespread these practices are, because there is almost no way to tell, especially with anonymous trading.

     Why not end anonymous trading?   It won’t end spoofing, but at least it will increase the risk the spoofers take.   There is no crime in placing an order and then cancelling it.  But when this is done systematically,  it becomes suspicious.  Proving criminal intent is super difficult.  The only solution is,  financial traders who don’t cheat.  But, why not cheat, if enormous profits result from it?