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Detecting Fleeting Best Quotes Before Market Orders

Article Quant Q&A · Author: frank
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Summary

The document raises an execution problem: a displayed best offer or bid disappears after a trader sends a market order to trade against it, potentially causing slippage. The trader wonders whether the quote was deceptive and asks how to identify or avoid this behavior. They explain that fill-or-kill and limit orders are unsuitable for their situation because they need to hedge quickly in a fast-moving market.

The post does not provide a detection method, supporting data, or a definitive classification of the behavior as spoofing. It is useful as a description of quote instability and the conflict between execution certainty and price control. Any assessment would depend on order-book and trade data, venue rules, and the specific order sequence; the document offers no tested mitigation or evidence that the disappearing quote was intentionally deceptive.

Key ideas

  • A best quote may disappear before a market order reaches it, creating execution slippage.
  • The post asks whether this behavior could indicate spoofing but does not establish intent.
  • The trader says limit and fill-or-kill orders do not fit their fast hedging requirement.
  • The document offers no detection procedure or evidence-based mitigation.

Tags

ExecutionMarket microstructureRisk management
Full text
# Fake Order Detection


# Fake Order Detection












Sometimes there is a limit order inserted as the best sell/bid, but when my program sees the opportunity and places a market order immediately trying to hit it, it's canceled which causes a big slippage to my order. I am thinking maybe the limit order is fake and used to lure orders in the first place. I am not sure what it can be called (maybe spoofing?) and wondering if anyone can give me some directions or references about how to detect and avoid this damage. Thanks. (Using of a FOK or limit order on my side is not ok since I have to hedge to prevent bigger loss in a fast moving market.)

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.