75000 Futures

There's an undercurrent of meaning over at Nanex that says that when these unusual-looking patterns appear, they are because some bad actor is doing something naughty, like manipulating the market.

The reality is that most of these patterns fall into one of the following categories -

(a) Test patterns (e.g. checking that your orders are appearing in the market data) which are normally done at times of very low liquidity.

(b) Software bugs (this is probably the vast majority). This might not be a "bug" as such, but an edge case of an algorithm that nobody has thought much about before. Writing robust order placement algorithms is surprisingly difficult.

(c) Positive feedback loops, where you detect and react to your own orders in the market data.

(d) Unanticipated interactions between two or more algorithms.

Of these, (a) is mostly benign, (b) and (c) can be actively harmful, and (d) can go either way. None of them are generally beneficial.

Real market manipulation doesn't look "weird" like this because people doing it are taking care to make it look like they're not manipulating the market. For example, they might spoof with a large order quite deep in the book (which wouldn't change the best bid and offer at all) or layer orders at multiple levels.

It's actually quite difficult to spot this kind of behaviour in market data, even if you spend your whole day watching algorithms trading.

On the other hand, it's easy to spot unusual-looking activity in categories (a)-(d) above, which is why Nanex is full of that kind of chart.

I would totally buy that book for my coffee table