Crypto exchanges and fictitious cryptocurrency trading

Fictitious trading on cryptocurrency exchanges artificially inflates trading volumes, thus deliberately influencing the exchange rate of a particular currency and leaving traders deceived.

In addition, the high volume of fictitious trading contributes to the popularity of the site and attracts new traders to it. Which cryptocurrency exchanges have been involved in such scams? That’s what we’ll talk about today.

THE CONCEPT OF FICTITIOUS TRADING
This is a type of market manipulation in which a trader buys assets from one broker and then sells them through another brokerage company.

This is how speculators buy and sell stocks without risking a loss. The U.S. Commodity Exchange Act defines these transactions as illegal activity.

CRYPTO EXCHANGES OKEX AND HUOBI ARE UNDER SUSPICION
According to cryptotrader Sylvain Rybs, most of the trading volumes on these exchanges are just a sham.

He conducted a special analysis, during which he studied the order books of several major cryptocurrency exchanges in order to determine to what extent the implementation of cryptocurrency worth $50 thousand will collapse the price.

In his analysis, Ribes applied the concept of “slippage,” defining it as the change (as a percentage) between the average and the minimum value that had to be agreed to in the process of selling the currency.

A study of bids from Bitfinex, Kraken, Binance and GDAX exchange platforms revealed an odd fact: they showed different results for the same transaction.

Rabes reports that he found a huge discrepancy between the various platforms. In his opinion, this difference cannot be explained by differences in user behavior. Reibes is sure that it can only be explained by the fact that the figures are inflated (and even up to 95%).

The first place among the suspects is the exchange OKEx. Its trading volume is approximately $1.7 billion.

How to identify a dishonest cryptocurrency exchange

SYSTEM OF DESIGNATIONS:

• blue icons – exchange platform Kraken;
• blue – Bitfinex;
• orange – GDAX;
• red – Okex.

The researcher admits that he expected to find volumes created artificially, but the real scale shocked him.

He found that a large number of pairs with trading volumes at the level of $5 million have a slippage of over 10% when exchanging 50 thousand cryptocurrency assets. Rabes believes that these values prove that a large percentage of the volume on OKEx is fictitious.

Reibes saw similar transactions on cryptocurrency exchange Huobi Pro. He believes that about 81.8% of the volume there is bogus.

But trading floors Binance and Poloniex did not arouse suspicions. The researcher did not identify any questionable activity on them.

There is an important detail: if the platform had no possibility to conduct such machinations, the system would inform clients that these transactions do not comply with the rules of the site.

Due to fictitious trading, the market shifts in the direction the manipulator wants, which is why such manipulations are forbidden on trading platforms.

Suspicions about Bitfinex are justified: a video was posted on one of the portals showing the most common methods of fictitious trading on this platform.

SYSTEM ERROR?
Exchange users often debate this: are such incidents a random software error or is it an intentional violation of exchange trading norms?

For example, LedgerX allows users to trade bitcoin cryptocurrency as a derivative, but the exchange does not allow any actions related to fictitious transactions.

On the other hand, Bitfinex does not have an algorithm prohibiting such transactions. It is possible to conduct speculative transactions with cryptocurrency on the exchange without restrictions. It turns out that Bitfinex approves fraud.

WHY EXCHANGES NEED FICTITIOUS TRADING
Because it increases currency turnover, which creates the deceptive impression of large-scale trading. This, in turn, raises the position of the exchange in all sorts of ratings.

Earlier, Bitfinex representatives confirmed that there were cases of fictitious transactions on the platform. But the situation has not been corrected.

After the head of the exchange’s strategic department Phil Porter spoke to the media, many users believed that he was aware of these cases and deliberately did not fix the mechanism allowing fictitious trading on Bitfinex.

Users have expressed various speculations as to why Bitfinex management allows such violations. They suggest that the crypto exchange has problems with bank accounts and the reason for condoning fictitious transactions could be the company’s desire to stay afloat.

According to another version, money laundering can be a reason for fake deals. There are hypotheses that the exchange is laundering cryptocurrency assets through EOS ICOs.