<p>To know what is going on, it is important to understand the order book.</p>
<blockquote>
<p>The order book is the set of all open orders on the exchange.
The bids and asks we see flashing indicate changes occurring on the order book.</p>
</blockquote>
<p>The order book changes when these happen:</p>
<ul>
<li>An order is added to the order book (new order is placed).</li>
<li>An order is removed from the order book (order is filled by a trade or order is cancelled).</li>
</ul>
<p>Since the order book is visible to us, we can check it for any type of sketchy behavior. The order book can be compared with order books on other exchanges. Some services exist that aggregate pricing data from exchanges. See: <a href="https://www.cryptocompare.com/coins/btc/markets/USD" rel="nofollow noreferrer">https://www.cryptocompare.com/coins/btc/markets/USD</a>. If we use a limit order, there is no way for an exchange to manipulate our order or trade. If they did, we would know immediately. This is because we set the limit price of course. Ultimately, exchanges could be doing malicious things behind the scenes and malicious bots could be operating on the outside. In order to know if funny business is occurring, we must understand how the market is supposed to be working. Additionally, we must protect ourselves from the malicious behavior that may exist.</p>
<p><strong>Additional notes on price manipulation:</strong></p>
<blockquote>
<p>If an exchange were to manipulate prices materially, they would create an <a href="https://en.wikipedia.org/wiki/Arbitrage" rel="nofollow noreferrer">arbitrage</a> opportunity for market participants. As market participants exploited the opportunity, the price would move toward the true price.</p>
<p>If an exchange were to be creating phony bids/asks, aka <a href="https://en.wikipedia.org/wiki/Quote_stuffing" rel="nofollow noreferrer">quote stuffing</a>, it would require analysis of all order submissions to know that this was happening. This data would need to be made available. The SEC provides this type of data for analysis of exchange traded equity securities. This data is provided through the <a href="https://www.sec.gov/marketstructure/midas.html" rel="nofollow noreferrer">Market Information Data Analytics System</a>. This type of manipulation would not affect users creating limit orders. However, it would allow the exchange to scalp every market order.</p>
</blockquote>
<p>We can protect ourselves by:</p>
<ol>
<li><strong>Using limit orders.</strong> When we use a limit order, we set the limit
that we are willing to pay. When we look at the order book, we are looking at all prices available to choose from. At each price there is some quantity available for trade See: <a href="https://youtu.be/y-x-dBtYQ-A" rel="nofollow noreferrer">GDAX limit order</a></li>
<li><strong>Avoiding market orders.</strong> If we use a market order, the price is not
specified. Thus, any price can be used to fill our order. See: <a href="https://youtu.be/5anFbgHrytQ" rel="nofollow noreferrer">GDAX market order</a></li>
</ol>
<p>I have made this video discussing the order book on GDAX.  Take a look here: <a href="https://youtu.be/fXZzligFmQ8" rel="nofollow noreferrer">GDAX order book</a>
This playlist contains the videos mentioned above along with others that may help.<br />
Take a look here: <a href="https://www.youtube.com/playlist?list=PLZbbT5o_s2xr17PqeytCKiCD-TJj89rII" rel="nofollow noreferrer">GDAX Playlist</a></p>

CC BY-SA 3.0
2017-09-22T03:05:23.683Z
not exactly answering the question. This is basic market fundamentals, not how an exchange could be manipulating bids/asks/prices behind the scenes without anyone knowing.
yourbrutalness
CC BY-SA 3.0
2017-09-22T03:10:01.160Z
@yourbrutalness What I have stated is how to deal with those concerns. For example, the title mentions, affecting our trades. Using limit orders defends against this. I'll add some details.
deeplizard
CC BY-SA 3.0
2017-09-22T03:31:18.983Z
@yourbrutalness I've provided an update. Please let me know what you think.
deeplizard
CC BY-SA 3.0
2017-09-22T04:47:35.810Z
Thanks for the update. I read through it carefully and it does address the question more directly. You are right in stating that we know through limit orders (not market orders) that **our**(the user's) actual price that we have submitted is being filled. Yet, this does not explain how we can be sure, that an exchange "owner" is not adding a bunch of phony bid and ask orders, that through time, can artificially drive the price up or down by filling orders, primarily orders to make an open position, especially on pairs other than USD/BTC, that aren't on other exchanges that keep them honest.
yourbrutalness
CC BY-SA 3.0
2017-09-22T23:39:25.983Z
@yourbrutalness I have added more information in this **Additional notes on price manipulation** section. I hope this helps. Let me know.
deeplizard
CC BY-SA 3.0
2017-09-22T02:31:12.217Z
2017-09-22T23:35:17.517Z
2020-06-16T11:10:03.350Z
deeplizard
<p>In an unregulated exchange anything is possible. I am positive that exchanges have great potential to do stuff that is sketchy. If you plan your trades hourly or weekly you will be affected in the minimum amount. </p>

<p>But for short term trades 30min etc you might be fooled by the trading bot of exchanges or bots connected by api.</p>

CC BY-SA 3.0
2017-09-22T02:46:19.347Z
2017-09-22T02:46:19.347Z
Emre Boyacioglu
<p>There is so much unknown when it comes to an exchange. There are bids and asks constantly flashing. There are lots of people using some sort of trade bot tapped into an exchange's API. </p>

<p>How can we be sure that the people running the exchange are not doing anything sketchy? </p>

<exchanges><trading>
How do we know that exchanges don't have trading bots going, affecting prices and our trades?
yourbrutalness
# How do we know that exchanges don't have trading bots going, affecting prices and our trades?

(Asked by: username_0 on 2017-09-21)

There is so much unknown when it comes to an exchange. There are bids and asks constantly flashing. There are lots of people using some sort of trade bot tapped into an exchange's API.

How can we be sure that the people running the exchange are not doing anything sketchy?

**Tags:** exchanges, trading


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## 2 answers

### Answer by username_1 on 2017-09-22. Score: 1

To know what is going on, it is important to understand the order book.

> The order book is the set of all open orders on the exchange.
> The bids and asks we see flashing indicate changes occurring on the order book.

The order book changes when these happen:

* An order is added to the order book (new order is placed).
* An order is removed from the order book (order is filled by a trade or order is cancelled).

Since the order book is visible to us, we can check it for any type of sketchy behavior. The order book can be compared with order books on other exchanges. Some services exist that aggregate pricing data from exchanges. See: <https://www.cryptocompare.com/coins/btc/markets/USD>. If we use a limit order, there is no way for an exchange to manipulate our order or trade. If they did, we would know immediately. This is because we set the limit price of course. Ultimately, exchanges could be doing malicious things behind the scenes and malicious bots could be operating on the outside. In order to know if funny business is occurring, we must understand how the market is supposed to be working. Additionally, we must protect ourselves from the malicious behavior that may exist.

**Additional notes on price manipulation:**

> If an exchange were to manipulate prices materially, they would create an [arbitrage](https://en.wikipedia.org/wiki/Arbitrage) opportunity for market participants. As market participants exploited the opportunity, the price would move toward the true price.
>
> If an exchange were to be creating phony bids/asks, aka [quote stuffing](https://en.wikipedia.org/wiki/Quote_stuffing), it would require analysis of all order submissions to know that this was happening. This data would need to be made available. The SEC provides this type of data for analysis of exchange traded equity securities. This data is provided through the [Market Information Data Analytics System](https://www.sec.gov/marketstructure/midas.html). This type of manipulation would not affect users creating limit orders. However, it would allow the exchange to scalp every market order.

We can protect ourselves by:

1. **Using limit orders.** When we use a limit order, we set the limit
   that we are willing to pay. When we look at the order book, we are looking at all prices available to choose from. At each price there is some quantity available for trade See: [GDAX limit order](https://youtu.be/y-x-dBtYQ-A)
2. **Avoiding market orders.** If we use a market order, the price is not
   specified. Thus, any price can be used to fill our order. See: [GDAX market order](https://youtu.be/5anFbgHrytQ)

I have made this video discussing the order book on GDAX. Take a look here: [GDAX order book](https://youtu.be/fXZzligFmQ8)
This playlist contains the videos mentioned above along with others that may help.  
Take a look here: [GDAX Playlist](https://www.youtube.com/playlist?list=PLZbbT5o_s2xr17PqeytCKiCD-TJj89rII)

> **Comments:**
> **username_0**: not exactly answering the question. This is basic market fundamentals, not how an exchange could be manipulating bids/asks/prices behind the scenes without anyone knowing.  
> **username_1**: @username_0 What I have stated is how to deal with those concerns. For example, the title mentions, affecting our trades. Using limit orders defends against this. I'll add some details.  
> **username_1**: @username_0 I've provided an update. Please let me know what you think.  
> **username_0**: Thanks for the update. I read through it carefully and it does address the question more directly. You are right in stating that we know through limit orders (not market orders) that **our**(the user's) actual price that we have submitted is being filled. Yet, this does not explain how we can be sure, that an exchange "owner" is not adding a bunch of phony bid and ask orders, that through time, can artificially drive the price up or down by filling orders, primarily orders to make an open position, especially on pairs other than USD/BTC, that aren't on other exchanges that keep them honest.  
> **username_1**: @username_0 I have added more information in this **Additional notes on price manipulation** section. I hope this helps. Let me know.  

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### Answer by username_2 on 2017-09-22. Score: 1

In an unregulated exchange anything is possible. I am positive that exchanges have great potential to do stuff that is sketchy. If you plan your trades hourly or weekly you will be affected in the minimum amount.

But for short term trades 30min etc you might be fooled by the trading bot of exchanges or bots connected by api.


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