Economics of spoofing

External question — Quantitative Finance Stack Exchange Author: user189035 Original post: https://quant.stackexchange.com/questions/31619 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I am trying to understand the economics of spoofing (I am a lay person). I understand that from a risk point of view, aside from the legal risk, the main risk is that of having a limit order filled before one can cancel it . My main question is: on US exchanges, do professional participants also have to pay for canceling a limit order? (is there a deterministic cost to consider as well?) (I understand that some brokers impose charges for canceled order . But presumably, these fee schedules are more relevant for retail investors. I'am specifically wondering about non retail HFT type operations.)

External answer — Quantitative Finance Stack Exchange Author: rrg Original post: https://quant.stackexchange.com/a/31620 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Layering is a spoofing of buy(sell) orders sometimes complemented by higher(lower) sell(buy) orders that push the market up(down). Execution of a limit order above(below) would not be a concern, as your price objective is fulfilled. No charge to cancel orders in the most common exchanges, for example, EUREX futures and OTC FI instruments. In equity HFT would also suggest no charge as would be detrimental to exchange objective of an increased order book. This article by Bloomberg's Matt Levine details how market making and layering activities could be a thinly separated line, https://www.bloomberg.com/view/articles/2015-10-08/why-do-high-frequency-traders-cancel-so-many-orders- . Additionally, there exist order types in equity HFT exchanges that protect the bid(offer) from being executed, unless trade conditions are met. Try KCG's excellent Demystifying Order Types, https://www.kcg.com/uploads/documents/KCG_Demystifying-Order-Types_092414.pdf . Financial risk, legal, moral all abound....