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Comment by csee | Hacker News Reader

Extremely sceptical that the volume is fake in the largest exchanges. You can see it's real for yourself by putting an order in the book and simulating when it should be filled and compare that to the actual fill. You'll see that they line up closely for the large exchanges which is strong evidence that the volume is real.

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Can you explain in more detail, please?

Sorry if it should be obvious. I'm used to being 100% stupid at least 10% of the time

Sure. Suppose there's 8 on the best bid and then you send a limit buy order of 1 quantity to the same price, making it 9 in total after your order arrives. Then after that, suppose a trade is shown with volume 9 at that price level. What this event implies is that someone sold into the best bid and took it out completely. If this trade volume is fake in any way, then your order won't get filled. But in reality, that never happens on the large exchanges. Your order will always get filled when you expect it to, meaning that the volume is real. If the volume was fake it'd be easy to prove. Just put a limit order in the book, record your screen, and prove that you didn't get a fill that you should have gotten. That won't happen in the large exchanges because the volume isn't fake.

There's some misunderstanding here. The paper is asserting that the volume is fraudulent, due to wash trading, not that the trades are fake.

In your toy scenario, I put 8 on the best bid, you put in 1 more, then I go on another account and hit the bid for 9 volume. 1 of that is legitimate volume, and 8 is fraudulent because I'm trading with myself (aka wash trading). Sure you get your fill, but the paper asserts that the stated volume is too high (in this case by 8).

No, there is no misunderstanding. The paper has falsely defined wash trading to mean fake trades.

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