Banter and General Comments, page-12634

Actually I don't agree with you on this comment. I would suggest if you watch the detailed stock trade play like I do, day in day out, you will find that spoofing is one of the most common shorter assistance strategies. It is used to hold the fight line and curtail/discourage buyers while the short trades eat away at the market clearing price.. In fact I would suggest that without spoofing the shorting doesn't work too well. So I would suggest that the borrowed shares are in fact mainly used in spoofing and only a portion of the shorts are actually committed to a trade (obviously depending on where we are in the price cycle).

There are very clearly cycles over days and within a day where a volume of short shares are actually committed to the trade (i.e. actually sold) then most of the time the algorithms switch to low volume trades aided by varying levels of spoofing.

The interplay of spoofing and actual trades gives a some-what reliable indication of how much the shorts have available for trading, or at least how committed they are.

For example, at the moment the shorts are looking pretty tapped out - ie. there doesn't look like there is a lot of spare shorting inventory - so the spoofing is significant but the attack is pretty weak. Now this can change remarkably quickly as they buy back and thus replenish the available short inventory, and it is almost impossible to know whether the buy backs are being returned and taken out of the system or returned and re-borrowed or simply being held for reuse. So while they can look tapped out for a few days they can rapidly come back full steam. The range looks like it is about 4% of the capital - when they have acquired about 4% they are in a position to try and drive the price down again, but when they have used up all that 4% and the total borrowing sits around 17% they start having trouble doing much more than being scary, and then the spoofing becomes that much clearer. However it is used at both ends of the range for different purposes, but rarely at the start of an attack cycle.

Now if you think about it this makes sense. If you wanted to profit from the short you need to sell a large part of your inventory at the top price, then drive the price down using as little of you remaining inventory as you can. So the first sales in an attack cycle need to be as invisible as you can make them, but just visible enough to stop the exuberance (pushing the price up). Spoofing doesn't always help here, but once you have the price running down, spoofing helps drive it further by discouraging the buyers.

I'd say spoofing is absolutely critical to effective shorting.

On the other side it is also important to driving the price up when it is on the buy side. The large buy a few rungs below the clearing prices gives risk takers confidence to take the buy price up, and sometimes makes it necessary for them to take the next rung up or they can't buy at a price low enough to make a profit on a short term hold.