Layering orders and their legality
A trading strategy is more than simply acquiring and selling at particular times. In this article, we'll look at what layering orders are, why they're crucial, and whether or not they're legal.
Layering, also known as spoofing, is a form of market manipulation in which traders submit orders at particular price levels to influence the price of an underlying asset. For example, if a trader wants to sell at a higher price than the asset is currently trading for, he or she may do so by placing a buy order above the current price. The price might move up a bit as a result. However, because the order was never meant to be fulfilled, the trader cancels it; instead, it was intended to raise the price further. Now, the trader may sell their position at a higher price.
However, if a trader wants to buy at a price lower than the current market price, he or she will "layer" numerous large sell orders above the market price. An algorithm or other traders may see it and treat it as selling pressure, in which case they will start placing sell orders in front of the trader’s orders, causing the price to fall. Then, the trader buys at a lower price and when filled, he or she immediately cancels his or her “layered” sell orders. The method is classified as high-frequency trading since it is done rapidly.
Legality of layering
The practice of layering is considered market manipulation and is illegal in the United States, United Kingdom, and Europe.