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Phantom Orders?


#1

Could you please explain what are phantom orders and how do they affect traders?
Does this have an impact on those of us who are day traders?
Very interested more about this term.
Thank you.


#2

By phantom order do you mean ‘quote stuffing’ ? Quote stuffing are orders sent to market with the intent to move the market, but never actually be traded on. In that sense they are ‘phantom’ orders, or not real orders. For instance, someone wanting prices to fall may stuff the sell side of the order book full of large volume orders. But if the price actually got anywhere close to those levels, they would be cancelled. Anyone doing order book analysis, may be fooled into thinking there is large selling volume above the market price, and so take a short position.

As the world of algorithmic trading is advancing further you will find that some quote stuffing could be a result of and/or caused by a failure, malfunction or negligent operation of the traders and/or of the exchange itself: (CME mistakenly places test orders for trading - FT.com)

On the brighter side, If you are trying to do this type of analysis, it may be better to just look at the first few levels of the book, as they are less likely to be the result of quote stuffing. Would it affect traders, it could IMHO, as the direction gravitates towards the volume, but at the same time exchanges do follow activities of such operations and will reprimand if done to mislead other players in the market place.

Matt


#3

Thanks Matt! nice explanation. May I ask more questions here?


#4

You can ask additional questions, but always make sure they are in the right section.
If it is about phantom orders, please continue here.

Matt