Hi all. I am an FX and equities high frequency trader, worked in some major hedge funds (Citadel/Virtu/Jump) and I have a couple of thoughts to share with you. I do not want to stir the pot but I want you to make informed trades, if you ever agree to participate in crypto trading.
In 2010 after the HFT feast on the market during the 2007-2009 subprime market meltdown, a practice called “layering”, ie spamming one side of the book, was outlawed. At that time HFT was like shooting fish in a barrel. I remember making +50 million dollars for my hedge fund in 10 minutes with just one process running in one box inside NYSE’s datacenter.
We did that mostly by duping the market. Because we knew we were the fastest in the market, and we could cancel all our orders at any time very fast, we would place an outrageous amount of orders on one side of the book in such a way that anybody watching from a Bloomberg terminal would have the impression that someone big was trying to buy (or sell) the entire book. At the same time we would place our (passive) orders at the other side of the book. Then they would take the bait and buy (or sell) our orders at the opposite side at what time we would cancel all our orders and the price would eventually move against them and in our direction.
Astoundingly this scam worked for many years and even more in times of volatility. It was finally outlawed by the SEC in 2010 (or 2011). [JP Morgan recently was found guilty](https://www.justice.gov/opa/pr/former-jp-morgan-traders-convicted-fraud-attempted-price-manipulation-and-spoofing-multi-year) of exactly that in the commodities trading.
So for many years all the sharks were forbidden to use their sophisticated tools to manipulate the market and that was awesome for the retail investors. They were guaranteed a calm market to make their purchases.
Enter crypto. Because crypto is unregulated, none of these protections apply and hedge funds took notice. Just by looking at the data, all the major players are at full speed waging war in the crypto world, unconstrained. All these firms are ripping off the head of anyone that ventures into that market and retail is the flesh they all are waiting for. I have already seen a couple of academic papers pointing out of this evidence but I can by myself just clearly see in the data all that they are doing. But most of you guys do not because many of you do not have the skills nor the tools do dig into the level of detail and generate the summaries that highlight this fact. I do and I am really sorry for some of you getting in this pool with the sharks.
So you want to trade crypto? Sure but check your emotions at the door. Social engineering and behavioral trading are a thing and we use that against you. Be warned. Be safe.