A London trader recently chargedwith price manipulation appears to have been using a strategy designed to trigger high-frequency trading algorithms. Whether he used an algorithm himself is beside the point: he made money because the market is dominated by computer programs responding rapidly to incoming market data, and he understood the basic logic of their structure.
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What is strange about this case is the fact that spoofing of this kind is, to quote one market observer, as common as oxygen. It is frequently used and defended against within the high frequency trading community. So why was Sarao singled out for prosecution? I suspect that it was because his was a relatively small account, using a simple and fairly transparent strategy. Larger firms that combine multiple strategies with continually evolving algorithms will not display so clear a signature.
