How can you tell if an exchange is faking their volume ?

[qwizzie]

I got a user named ttx in my Dash Price and Trade Discussion thread, who says he thinks xBTCe is faking the Dash volume and he posted the following after i requested more evidence :

https://bitcointalk.org/index.php?topic=1233119.msg17454579#msg17454579

look orders on xBTCe
dsh/btc

dsh/usd

You do not see this strange?

Is there something strange about these printscreens of the orderbooks of xBTCe that he uploaded ? Or is it just some whales trading there ? I'm not even sure where he got these orderbooks from, maybe straight from xBTCe's API?
These are the related pairs on xBTCe :

https://www.xbtce.com/dshbtc
https://www.xbtce.com/dshusd
https://www.xbtce.com/dshcnh

Edit :

Coindesk also made an article in 2014 about Chinese Bitcoin trading volumes : http://www.coindesk.com/reality-chinese-trading-volumes/ that could be helpfull in understanding
more about fake volume in general.

 

[stan.distortion]

It depends what's meant by "fake", users buying and selling for legitimate needs is the only "real" use of exchanges but that only makes up a very small part of the trades, the bulk is speculative trading and the cutoff point with that is the trade fees. Those look very much like automated trading bots and if the fees are low then a bot can make a tiny but significant profit in a fraction of a percent of movement, if the fees are high then they have to wait for bigger movements. I'm not sure what's the norm in fees these days but xBTCe lists 0.1% to 0.2% and that seems very low to me so running bots on that exchange could be very profitable. Are bots fake volume? Yes imho but there's a big difference between profitable trading and exchanges fudging the books.

 

[TroyDASH]

It depends what's meant by "fake", users buying and selling for legitimate needs is the only "real" use of exchanges but that only makes up a very small part of the trades, the bulk is speculative trading and the cutoff point with that is the trade fees. Those look very much like automated trading bots and if the fees are low then a bot can make a tiny but significant profit in a fraction of a percent of movement, if the fees are high then they have to wait for bigger movements. I'm not sure what's the norm in fees these days but xBTCe lists 0.1% to 0.2% and that seems very low to me so running bots on that exchange could be very profitable. Are bots fake volume? Yes imho but there's a big difference between profitable trading and exchanges fudging the books.

I don't think we're talking about trading not volume though - I would absolutely consider trading bots to be real volume. The issue is when exchanges artificially inflate their volume by initiating buys or sells to themselves, with effectively no fee (because they are their own counterparty).

 

[stan.distortion]

I don't think we're talking about trading not volume though - I would absolutely consider trading bots to be real volume. The issue is when exchanges artificially inflate their volume by initiating buys or sells to themselves, with effectively no fee (because they are their own counterparty).

I'm contradicting myself saying it but those bots have a beneficial effect on speculative markets by damping fluctuations and thereby making market manipulation more difficult so the more there are the better. If an exchange is taking an advantage of their position to run trading bots with zero fees then they're re-enforcing that and personally I don't see anything wrong with it, they can make a profit from trading which they can pass on to the customers with lower fees and they're adding to the market depth. I really dislike exchanges and feel they're the most dangerous part of the whole cryptocurrency ecosystem but them using their position to make profitable trades is the least of my concerns, actually having those coins to trade with is a way more serious and almost entirely neglected issue.

If they're simply buying and selling to themselves to create the illusion of trading volume then that would be worrying but between volatility and arbitrage they can create a huge and profitable trading volume as a by-product of aiding market stabilisation.

 

[fible1]

A lot of small trades with minor price movement could indicate wash trading; but its a thin line form wash trading to market making.

Hard to tell really.

Pablo.

 

[TroyDASH]

I'm contradicting myself saying it but those bots have a beneficial effect on speculative markets by damping fluctuations and thereby making market manipulation more difficult so the more there are the better. If an exchange is taking an advantage of their position to run trading bots with zero fees then they're re-enforcing that and personally I don't see anything wrong with it, they can make a profit from trading which they can pass on to the customers with lower fees and they're adding to the market depth. I really dislike exchanges and feel they're the most dangerous part of the whole cryptocurrency ecosystem but them using their position to make profitable trades is the least of my concerns, actually having those coins to trade with is a way more serious and almost entirely neglected issue.

If they're simply buying and selling to themselves to create the illusion of trading volume then that would be worrying but between volatility and arbitrage they can create a huge and profitable trading volume as a by-product of aiding market stabilisation.

Yeah, if the exchanges use bots to profit then fine, it's only the scenario where they are literally buying from themselves (and no one else) in the same transaction, which would be considered fake volume. They could put an order for 30000 dash between the current bid and ask price, and immediately sell it to themselves, do it a thousand times and all the sudden there is a magic $300,000,000 in trading volume with zero profit, and zero real market movement.. I have no idea how it would be possible to tell when or if those types of trades occur