Fraud Risk Scheme:
A trader or a network places a large number of buy/sell orders without the intention of execution to create a false impression of supply or demand. These orders are rapidly canceled before execution, aiming to influence the price and profit from real variations via hidden or actual orders on other accounts.
Detection:
Massive orders or numerous modifications followed by rapid cancellations within a short timeframe.
Recurrent patterns: same order sizes, price ranges, accounts, or IP addresses.
Correlation between cancellations and price movements favorable to the initiator.
Activity concentrated just before critical spreads or trading ranges.
Clustering of events across multiple linked accounts (graph/network analysis) or via third-party accounts.
Prevention:
Real-time monitoring of orders and cancellation rates (cancel-to-trade ratio) with alert thresholds.
Imposition of penalties or temporary restrictions for abnormally high cancellation rates.
Limiting the size/frequency of new orders for suspicious accounts.
Enhanced KYC (Know Your Customer) and monitoring of links between accounts (related entities, shared IPs).
Introduction of minimum non-cancelable durations or marginal costs for canceling certain orders (per regulation).
Information sharing and reporting to market authorities in confirmed cases.
Share your feedback:
What tools, techniques, and processes are used in your organization to detect and prevent such fraud schemes?
