Beeing a content creator in this space ,
I feel I should write about it and also give you the tools to understand what is happening in the current crypto market and how does trading actually work.
Understanding markets means better control over the market manipulation and less risk for new investors.
What topic could be more valuable than this:
Many people share that cryptocurrencies and the blockchain technology are going to lead towards a new era of innovation and freedom for individuals across the world. But power is nothing without control and could lead to some serious issues...
Let's spend some time today and talk about some manipulative crypto market practices.
CATEGORY 1:
Pump and DUMPs - most common method for market manipulation and also ILLEGAL
They prey the leakest and smallest investors speculating on the price action. There are few steps that must be conducted in order to successfully execute a P&D.
- a group of investors, traders and speculators come in all in once at specific time (agreed upon time) to pump up the trading volume.
- as new speculators come in outside of the P&D group and a new liquidity point is reached , the pumpers achieve their exit point and sell their positions with high profit.
- ''What comes up- must go down'' : As the original manipulators start to sell their positions, we start to see a matching decline in the price action. In some cases this could drop the price all the way down to the initial bottom of the pump or even lower.
- The new investors have no other choice and are forced to sell for a lower price or just to hold on the way down.
This is just one of many daily examples for market manipulation:
MARKET MAKERS, sometimes are also called WHALES - in most cases fully LEGAL
A high liquidity trader - who owns a lot of ETH or BTC will go through and start trading a specific cryptocurrency. The function of a market maker is to bring liquidity into a market, that has not enough high levels of trading volume. This method is commonly used to newly launched ICOs , when they hit an exchange. This is how the market maker makes profits:
- When the cryptocurrency is launched to limited amount of exchanges and the trading volume is very low, the trader benefits from the fresh money ( more liquidity) of the new investors.
- Using the moment and trading the spread between the BID and the ASK orders.
EXAMPLE:
It is important to mention here, that market makers aren't ''bad apples'' , but they actually even make the market more liquid and tradable. Sometimes they leave impressions that larger investors or institutional investors are getting involved into the market. It is not too difficult to spot a market maker volume , so you can look out for it. (Usually the volume bars are very similar on a daily basis)
EXAMPLE:
and last of the CATEGORY 1, It is time to talk about
ALGORITHMS
Many people still operate on the misconseption that markets are run by human participation, but in fact the markets are run by robots/trading_bots in general. That doesn't mean we should ignore the human aspect in crypto.
Let's focus now on basic algorithms first:
Trading algorithms are programmed on programming languages as *PYTHON to set an execution in specified scenarios. IF coin X hits specific price, => buy/sell If you start to search deeper how the algorithm actually works, you will understand why this plays a huge role into the market manipulation. You can even build a whole trading strategy based on it with profit zones and selling points. Why this methodology is better and faster than a human being? Simply because of the fact that no emotion is involved = less mistakes = more profit. By following very strict rulles the bots are able to trade at very high frequency
EXAMPLE:
What is high frequency trading algorithm (HFT)? The main objective is to gain information on current price action as well as open orders, before anyone else can. It all happens within milliseconds. Currently there isn't so much HFT in the crypto market going on, but there is no doubt that in the next few months and years it will become more and more prevalent.
- Trades executed at the best possible prices
- Instant and accurate trade order placement (thereby high chances of execution at desired levels)
- Trades timed correctly and instantly, to avoid significant price changes
- Reduced transaction costs (see the implementation shortfall example below)
- Simultaneous automated checks on multiple market conditions
- Reduced risk of manual errors in placing the trades
- Can be backtested, on available historical and real-time data, to see if it is a viable trading strategy
- Reduced possibility of mistakes by human traders based on emotional and psychological factors
more about here: 
CATEGORY 2 - LESS KNOWN BY AVERAGE INVESTORS AND CRYPTOCURRENCY TRADERS
Wash trading - ILLEGAL
When an investor or two coordinated investors simultaneously buy and sell the same financial instrument/ accet to create a misleading fake trading activity on the market. Usualy used by brokers to generate/ collect more commision fees and also in crypto space used by exchanges to push up high volumes and to attract more new investors / customers.
By the way the trade engine of Bitfinex ALLOWS for WASH TRADING
The trade engine on Bitfinex will allow you to buy and sell to your own orders, the procedures to do it are as follows (which will likely be ‘fixed’, or partially fixed after this post…)
- Place a buy order, or a sell order, for Bitcoin or anything that trades on Bitfinex.
- Place a matching order opposite of your buy or sell order.
- The trade engine will execute trade against your own order.
Here is an example of how it works:
CAUTION - Wash Trading is illegal!-
Spoofing - ILLEGAL
A trader sets a large buy or sell order for a coin X. This gives us the illusion that we know, what a whale is going to do and could convince the masses to buy or sell their positions before his order. After that by using HFT bots the trader cancels his fake order before it is too late. This also removes buy or sell walls and helps him to take advantage of other investors' misconception, that big investors are going to buy or sell. Because of the lack of regulations in crypto space, spoofing can be found not only of the variety of exchanges, but also in the variety of currencies outside of Bitcoin.
Sometimes the goal is to drive the price up or down in general, sometimes its to create volatility in the short term to make money around a current price. The goal changes with the strategy of the manipulator (it depends on if they are building a position, margin trading long or short, sitting on a giant futures contract, etc).
EXAMPLE
I am also happy it was helpful to you and is worth my effort (over 6 hours spend),
