The financial markets are highly competitive spaces. Often times, there are practices that competing entities engage in that aren’t entirely fair, but, the end goal of making money is achieved by one party.
Traders and investors who usually conduct their trades from behind a desk are often unaware of such practices and their online trading platforms can lead to losses or an unproductive trading day depending on the signals being sent out in the market.
When a trader floods the markets with huge orders of a product with corresponding quotes that will take competitors a long time to process thereby using up valuable trading time, such a practice is known as quote stuffing. This practice basically allows companies to do their trades while their competitors are busy processing a set of numbers that will make them lost a lot of valuable trading time.
Since trading has gone digital and a lot of trading happens on electronic platforms this concept of stuffing is thriving. When people use automated trading platforms such as Fincrowd app, it is easy to send out signals into the market that can be misleading to other traders.
High-frequency programs for trading aren’t illegal. They just execute market actions with amazing speed, thereby reducing instances of latency. However, the practice of stuffing itself is a huge gray area and often times this act of stuffing occurs when traders who have access to algorithmic trading tools send out these misleading signals into the market.
This is obviously a tactic that is employed by people to ensure that they are the ones with the competitive edge and can make the most money. However, the practice can be carried out by huge corporations whose information is usually considered reliable and competitors might not realize that someone is stuffing the market.
Once a market is stuffed with quotes and people are processing the data, the same quotes are withdrawn almost immediately. This is a relatively new practice in the financial markets and gained a lot of traction as online trading became more prevalent. It was in 2010 that the term quote stuffing was coined.
Since markets and financial trades are digital and are conducted over data lines, the practice of stuffing employs flooding these lines with information at such a speed that the lines slow down and there is a latency created until the buffer is drained. Despite the fact that quote stuffing can hamper day-to-day trading, there aren’t any regulations on it just yet.