Volume Manipulation by Immediately Filled Orders

Education,

It goes without saying that liquidity is essential for smooth and effective trading for any financial instrument. And the crypto exchanges that provide sustainably high liquidity gain high credit and loyalty of the users. While in traditional financial markets the liquidity provision is regulated strictly by the set of rules and legal frameworks, the crypto market still remains nebulous due to its immaturity and lack of regulation. Struggling to acquire new customers, most of the crypto exchanges systematically inflate their trade volumes hence intentionally mislead the users with the appearance of high liquidity. CER has been combating this widespread issue for almost a year by conducting the investigations and releasing reports revealing the manipulation facts. Recently CER described “trading inside the spread”, the most common way crypto exchanges use to inflate their trade volumes. In this article, we will outline another popular wash trading technique – “immediately filled orders”.

WHAT IT IS?

The method of “immediately filled orders” is characterized by submitting opposite orders at the same price simultaneously to be executed instantly, usually within a second. In practice, this manipulation is performed by programmed algorithms with the use of two or more accounts. Buy orders are submitted from one account and sell orders from another meaning that the funds are not, in fact, changing hands. In such a way the assets can be turned over many times hence impressive trade volume is forgeable even with a small inventory in possession. With that in mind, CER recently introduced Trading Activity Index (TAI) presenting the ratio between the exchange trade volume and wallet balance. TAI indicates the velocity of deposited funds thus signaling risks of volume manipulation.

WHAT IT LOOKS LIKE?

The implementation of the described manipulation technique may vary on different exchanges. Some cases demonstrating the detected manipulations with the use of the immediately filled orders are presented below. Usually, manipulating orders’ submission and execution are fulfilled very rapidly thus may not be easily caught up with the naked eye. Therefore all the following gifs were made in slow motion to demonstrate noticeable changes in the order book.

Gif 1. DOBI exchange BTC/USDT order book & trade history

Gif 1 shows buy and sell orders of equal amount appearing in the order book at exactly the same price. At the same moment, a trade of the equivalent amount is recorded in the trade history.

Gif 2. BitMart BTC/USDT order book & trade history

The Gif 2 exhibits the submission of the sell order and its execution a moment later without showing the corresponding opposite order.

The manipulating orders may also be filled with multiple transactions.

Gif 3. Coinbene BTC/USDT order book & trade history

The Gif 3 displays the situation when the submitted sell order is filled with two trades where the sum of their sizes equals to the order amount. Note that the transactions appear in the trade history an instant prior to the order showing up in the order book. That might be due to the trade history updating faster than the order book.

Gif 4. DOBI exchange BTC/USDT order book & trade history #2

And finally, Gif 4 demonstrates a more advanced fulfillment of the manipulation technique in which the series of opposite orders of different sizes are submitted and executed at the same price within a few seconds.

Final word

Trade volume manipulation is a major issue of today’s crypto market. And the examples provided above present only one of the most common means to fake volume and deceive crypto exchange users. There is way more to be revealed. Stay tuned!

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