Watch out for cryptocurrency spoofing

If cryptocurrency trader worth their salt will know that the market is extremely volatile. If they did not know this prior to the all-time high of Bitcoin and the subsequent crash, then they definitely entered 2018 much wiser. Now that the market has matured a bit, it is largely seen as one of the risks that come with the cryptocurrency space. Yet, the cryptocurrency market is still very different from traditional stock markets and foreign exchanges. Whereas these markets see fluctuations as well, these happen over the space of days, weeks, months, and years. In the world of cryptocurrency, it can happen from one second to another.

No matter how big a disaster is, you can be sure that there will always be someone ready to turn it to their advantage. The cryptocurrency market is no exception to this rule, and several traders have benefitted from this extreme volatility. A sudden but drastic dip in the value of a cryptocurrency is called a ‘flash crash’. Some traders will take advantage of this flash crash, and buy all the most popular tokens when they are at their lower point to sell them off when the price goes back up. Now, however, certain criminal organizations have taken it a step further. Rather than wait for a flash crash to happen naturally, they create one artificially.

What is spoofing?

Spoofing is unfortunately not a joke in the context of cryptocurrency. Spoofing is when criminal organizations place fake orders on cryptocurrencies in order to artificially manipulate the price of them. Although we like to think of ourselves as individualists, most of us fall prone to mob mentality from time to time. Cryptocurrency traders are no exception to this, no matter how savvy or experienced they are. This means that the cryptocurrency market is very dominated by the prevailing optimism or pessimism about a given token or coin. When traders spot a trend of other traders buying or selling a given cryptocurrency, they have a tendency to do the same. It is this tendency that criminals exploit in order to engage in spoofing.

How does spoofing work?

Spoofers can manipulate the market by placing buying or selling orders on a given cryptocurrency. Whether their orders are to buy or sell depends on which way the spoofers want the price to go. Once enough orders have been placed, all the spoofers have to do is wait for other traders to take the bait. When the traders do that, the price for the cryptocurrency starts to change. Once it is almost close to being where the spoofers want it to be, they cancel their orders. Traders who are not aware of the spoofing going on might then be susceptible to great losses on their investments.

When trading in cryptocurrency, always make sure you are aware of spoofing so you do not fall prey to these kinds of artificial manipulation. If you have had any first-hand experience with spoofing, remember to share your experiences in the comments sections below!

 

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