The Exact Trading Strategy of the Flash Crash Trader
In this solo commentary, the presenter walks viewers through the order‑flow fundamentals that underpin modern market microstructure and then uses those concepts to dissect Navinder Singh Sarao’s spoofing operation that culminated in the 2010 Flash Crash. The video begins with a clear definition of passive (limit) versus aggressive (market) orders, the double‑auction nature of the order book, and the FIFO queue that determines execution priority. It then illustrates how large, non‑genuine orders can be placed, cancelled, and repositioned to create the illusion of market depth, scaring other participants into selling and allowing the spoofer to acquire cheap liquidity. The narrator recounts Sarao’s background – his training at the London prop firm Futex, his early observations of “500‑lot” and “2,000‑lot” spoofers, and his venting on the Trade2Win forum where he both complained about and eventually decided to emulate the manipulators. Detailed description of his automated spoofing algorithm follows: high‑frequency cancel‑replace cycles that keep his large orders at the back of the FIFO queue, preventing accidental fills while continuously pressuring price downwards. The presenter then links this strategy to the May 6 2010 Flash Crash, noting that Sarao’s spoofing generated roughly $1 million in profit that day and attracted CFTC scrutiny, leading to his arrest, asset seizure, and imprisonment. Throughout, the video critiques the double standard where large institutions evade punishment while a lone retail trader is prosecuted, and it positions order‑flow analysis as a legitimate tool for retail traders to understand market dynamics without resorting to illegal manipulation. The video concludes with a call to action for viewers to learn order‑flow trading on the channel.
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There is one trader which went down in history as one of the most legendary traders of all time. Well, let's be honest, there's very few legendary traders that go down to history, and one of them is definitely Navinder Singh Sarao, an Indian trader from London that was involved in the 2010 flash crash, one of the very first flash crashes that the markets have ever seen. Very quickly, and then down 800, nearly 1,000. And heck is going on down here? Uh, I don't know. There is fear. This is capitulation. We're in single day market plummeted by 5%. And why this trader went down to history was because during the day of the flash crash, and for years before that, he has managed to manipulate the markets as a retail trader from his childhood bedroom. He was playing the type of game that banks play, that big financial institutions and HFT firms used to, but on his own personal account. And within his trading activity, he managed to amass a wealth of $50 $50 million from trading alone. And he did all of this decades ago using the same type of tool that I've been explaining on this channel for a while now, which is Orderflow. As you probably know, Orderflow gives you a deeper layer of market information and understanding because it doesn't just show you normal candlesticks. It shows you how these candlesticks are formed and which orders are interacting with each other and how they build price action. It's actually what's happening behind the scenes of price action. And even though since I started making content about it, the awareness around this type of tool has been radically increasing in the retail space, this type of tools have been there for decades. And in this video, I will show you the exact spoofing strategy that Navinder Sarao was using and how exactly he used it to manipulate the market and literally making the ES, the E-mini S&P 500 futures, his personal puppet and personal cash cow. So in order to understand Navinder's strategy to spoof the markets and basically milk it as it was his fucking cash cow, we need to first understand the basics of order flow. Inside of financial markets, you have two types of orders. You have two main forces that drive prices. So you need to understand that there's two main forces in the market: passive forces and aggressive forces. As forces, I mean, of course, sell orders and buy orders, either in the order book, which is— you can see it basically as a menu, as a catalog of goods sold at an auction, right? And it's an auction of sell orders and an auction of buy orders. So in an auction, you get the painting if you're ready to pay a slightly higher price, right? So for example, this is a slightly higher price and this is a slightly lower price. This difference is called spread. This difference is what we call the spread. For example, this buyer for 30 contracts will buy from this seller that has put as an offer 43 sell orders. And as soon as these orders are matched, that becomes the new price, just like in an auction. Whenever someone is willing to accept a higher price, the price goes up. Maybe another person comes, buys 50 more contracts. He's going to have to buy some here and some here, and the price will keep rising. Someone buys 100 and price will rise again. So this is the new price. And so on and so forth on the upside. So you have a double auction. You have an auction of sell liquidity and an auction of buy liquidity. So if, if an aggressive seller comes, accepts any offer that is made here, that becomes the new price. This is the new price now. Then 100 contracts come into the market. Some will be taken here, some will be taken here. This will be the new market price. Someone else comes, a lot of sellers come, and the next price is this one. OK, so the aggressive forces of the market has what we call execution authority because they decide when they get executed. You can get executed now if you want, but the price will be decided by whatever there is liquidity in the order book. That's why we say that order book orders have pricing authority. All right. Let's say you want to buy a stock. You can either place an offer in the order book and wait for someone to accept that buying offer. So you basically place a so-called buy limit and basically wait for a seller, an aggressive seller, to come and accept your offer. But maybe you don't want to wait. Maybe you're okay with paying a slightly higher price, paying a spread, and buy at still a reasonable price. Then in that case, you're going to instead of buy limit, you're going to buy market and you're going to go and take your sell back. Let's say your, your sell counterpart, your sell liquidity. And this is how stock prices and prices in all financial markets move. Now, if we get a little bit more into the details on how this works, this is the total amount of sell contracts that you normally see in an order book. For example, this is the current order book of the S&P 500, and you're basically going to see sell bubbles on buy offers and buy bubbles on sell offers. And as you see, everything happens at a very, very high speed. But this is how the auction unfolds. Price is pushed down by these pink bubbles and it's pushed pushed up by these blue bubbles that are simply aggressive order eating out these levels of buying liquidity or selling liquidity. But what you don't see behind these numbers that are exactly the surface of the order book is that, you know, if there's 43 stocks ready to be sold, they don't need to be all from one guy. They can be 15 from a guy, 15 from another guy, and 13 from another guy. So there is this queue in the order book of orders that are placed there through time. and it's following the FIFO rule, which means first in, first out. So, for example, if another sell order for 8 contracts is placed here, it will go to the very back of the queue, while the first order that was placed there is going to be the first order to get filled whenever someone comes and buys it. Same thing, of course, happens below here. So, for example, if someone wants to buy market 15 contracts, the first guy who will be executed is this one. So these two guys will be matched. And now the total amount here will probably be 30. And the orders that were in the queue will shift. And now this is going to be the next one who's going to be executed. So it's actually 28. Anyway, you get the point. And now you can understand what Navinder Sarao was doing every single day. Something you might— something might— something you might want to know is that Navinder Sarao used to— has learned trading in a London proprietary trading firm called Futex, which is still open and still, let's say, active. And that's the place where he has learned professionally in the early 2000s to read the order book. And he was basically just using this tool. And I'm going to show you an example of a real order book or depth of market. I'm going to select the ES. And this is what his charts would look like. Buy orders here, sell orders here. And he could see through the numbers going up and down and seeing the execution happening at these levels, who was really dominating the markets. And he's already made tons of money like this. So this guy was just using this, just using a very basic order book. And because he was so smart, I think he had some sort of Asperger's syndrome. So he was extremely good at math. He was extremely good at games, at video games like FIFA. He was extremely versatile in any type of game that involved some sort of mental skill and logical reasoning. And he used that skill in trading as well. And he was dominating the order books of the S&P 500. And he started noticing that huge market participants would join the market and do something very weird. For example, at some point in the book, you would see a huge order popping up here for maybe, let's say, 500 contracts. And you would see that if, for example, you tried to buy 100 contracts, you would take 43 from here. So all of these would get filled and the remaining you would take it from this level, right? So you get filled a little bit here and a little bit here. But as soon as you tried to buy into these level, these orders were completely disappearing and reappearing at a higher level. So it's like you were trying to buy from this huge market participants, but this guy was not letting you buy. He was just putting a huge order here, but never letting it get filled. And typically when this used to happen in the books, whenever you see such a big market participants joining the party, well, you typically tend to think that this person knows a little bit more than you, that he might be having more information than you. So you try and front run him. So you basically start selling and selling and selling because you trust that this order is real and there is someone with more information than you joining the market and who wants to sell big time. So as soon as these orders popped in the book, you would see a lot of aggressive sellers eating the liquidity in the book. So this level would be over. Then 50 more contracts would enter the book and eat most of this liquidity out. So now you just have 28. And as price kept moving lower and lower and lower, every downtick of price, these orders would follow up. Let's say this level was taken as well. Well, these orders would move and always stay around a couple of ticks above the best bid. But then again, if someone tried to buy them, they would either disappear completely or be moved to the upper side of the book and moved up here. So they would never really get filled. These orders are not put in the market with the real intention of selling. It was just a manipulation tactic to scare people off into selling aggressively into what the real order was. So maybe this market participant was scaring people out with 500 contracts so that he could get the liquidity, as in sell orders that come into the market, because he actually wanted to buy below here. And as soon as he was getting this order filled— so this order got filled, so let's say he managed to buy this level 100 contracts, which is his real trade— then at that point he would delete this order from the book. The book would return to normal. People would understand that the real buyer is here and that that was all fake. So the auction will start going higher and higher again. Buyers will start aggressively buying because they know they've been scammed, and this guy is now hugely in profit. This is how spoofing works. And so as Navinder was seeing this thing happening in real time, he got very, very frustrated, up to the point where in a forum he was literally talking about this. And one thing that a lot of people do not know is that he He used to complain about the spoofing activity that he was seeing in the order books. And he was complaining about it in a forum called Trade2Win, where he joined in 2013. And right after the crash and all of the mess that came after it, he never joined these forums ever again under the pseudonym of Lord Jamla. And if you look at his posts from 2007, constantly talks about the S&P 500 futures corruption. And he says, for all those that trade the E-mini S&P 500 with a ladder, which is the order book where you can see the bids and the offers, you must have realized now some market participants has an unfair advantage over the rest. I'm referring to the two spoofers, the 500 lots and the 2,000 lots, who are there every day and seems to push around the market. Now, I'm not the one complaining about spoofing. I mean, hey, it happens in every market. But these two S&P spoofers cannot be hit. I've tried many times, gentlemen, and they simply can't. Hence, they contravene the rules. As per the CME themselves, they should be eliminated from the market. I have spoken to the CME about this, and they simply refuse to accept what is going on, even though you only need to watch the ladder at any time during the day to see that it is. It's a clear example of letting the big guys get in the way with blood murder at the expense of the small guys. I mean, if you try doing whatever they're doing with a 10-lot, the CME would be all over you like a cold rash. Spoofing is fair enough, but only at the expense of getting hit. I mean, if I had the software to put $2,000 on the bid and never get hit every time I wanted to sell at the offer, I'd do it, and we would all, but the market would become a farce. I may sound bitter, but I actually make money off of these guys, as I can see what they're doing. When it's within the line of my own thinking, I go along for the ride. But when they're wrong, it angers me that they disturb the momentum of tide against them with no risk of being hit. I mean, I'd love to smack their bids when they're trying to hold the market up up when I'm short, but I just end up on the offer showing my hand. The markets should be on a level playing field for all. A couple of days later, he continued saying, lol, looks like they've disappeared. Well, I did see them spoofing the market desperately at the 15:30. Wow, 15 markets were there at 15:30. We're trading 6,000s now. That's crazy. A lot of time has passed. Good things you bank traders do not have the balls to trade with your own money. The disgrace, it looks like granny across the country will be wearing the loss. Spoofs 4095 bid. Oh, one final caveat. I'm working on a program on trading technologies to get the same cheating software. If you can't beat them, might as well join them, hey? Europeans have a pathetic attitude of accepting whatever authority is throwing at them. They never fight back. With the volume I do, I know the exchange will turn a blind eye. And just imagine how easy trading will be since one is already cleaning up while playing the rules. It's been a sweet week. See you next week, folks. And the rest, as they say, is history. This is exactly what he did. He built an automated software. So after training a few techs for a while and learning how to read the price ladder in real time, and after seeing all this spoofing activity happens in the book of the S&P 500, he decided, well, if you cannot beat them, might as well join them, and built his own spoofing algorithms on trading technologies or through his broker or something like that. By the way, this This story is fully covered in the amazing book Flash Crash by Liam Vaughan. And in that book, you can read the specific requirements that he made to his broker or to his trading platform so that he could properly execute these type of trades. Let's say, for example, he placed 750 contracts on a single level, this being his spoof order. The reason why he would put it here is to lead the market down and maybe just sell 10, 20 contracts over here to have the market go down and fill maybe his real buy order. But this is very risky because if you just place 750 contracts on the book and someone accidentally buys them, you are short 750 contracts you do not want to be short of. So if, for example, this level would get completely eaten by aggressive buyers, the algorithm would automatically move his order a little bit more up. And if this could not happen fast enough and there was a big market participant eating also the rest of the liquidity, in the queue, just to make sure that he was always at the back of the queue, he would constantly cancel this order and replace this order, cancel this order and replace this order, cancel and replace, cancel and replace. And he used to do it at a very high frequency so that he could always make sure that his order was back chronologically in the FIFO queue. This way he made sure to always stay at the back of the queue and never get filled. And in case this level started getting filled, he would delete this order from here and place it right above here to keep pressure up to the downside. So he started using this exact trading strategy. He would manipulate the perception of the markets because he, he learned it from the markets. He saw banks doing it. He saw these big market participants basically moving the markets as they pleased. And he managed to do this with such a high size that when the regulators discovered that it was just a guy in his bedroom, they were completely in shock because they expected to see some big financial cartel around the size that this guy was trading and that this guy was spoofing. Because through his strategy, he managed to make over $50 million from trading alone by understanding the dynamics of the order book and by beating banks at their own game. Like, do you understand how fucking awesome this is? And I wish I could tell you that he made a lot of money. He retired on a beach somewhere, made his bank, and that's it. But unfortunately, the story doesn't end here because in 2010, this thing happened called the flash crash. In a single day, the price went down almost 11%. Just the last 5% happened in a matter of minutes. A lot of money was wiped out from the stock market. People lost a lot of money that day. But our dear Navinder Sarao, throughout the entire day had been spoofing the market and made $1 million in a single trading session. $1 million. Okay. Not with a prop firm payout, not with all the information we have today, but thanks to learning from the market how the markets work and how these big banks are manipulating the market on a daily basis, not by hunting stop losses like some of these YouTube theories today say, but through real genuine market manipulation. And so, and so when studying what happened, and so the CFTC, while studying the books of the CME on that specific day, they saw the footprints of this guy in the order flow of ES, the E-mini futures of the S&P 500. And they alleged that he may have had a very important role to causing this flash crash, which is completely nuts. How could a guy from his bedroom in Hunslow be responsible for this? Because all of the order flow that was triggered after was not just from him, was from so many different participants. What he did wrong, though, was he was spoofing the markets, which was technically an illegal practice. And so he got in jail. They took away all of his money. Simply because he was doing what the banks already been doing for almost decades in the markets. And that's what pisses me off about the story. But the same reason why he is such a legend in trading, because he's the example of how markets are not fair. Privileged market participants who are well connected with the CFTC and the CME and all of these exchanges will always get away with market manipulation. But if a guy truly understands it and tries to replicate it or front run it or maybe get some edge out of it, in a fair way without any technological advantage, with the same order books we all use, with the same information, without any degree of informational asymmetry or insider trading, none of that. He gets to jail. He has to give all of his money back. He has to go through so much bullshit, which is so unfair. So this is also a big shout out to Navinder Singh Sarao, as he's one of the figures that inspired me to learn order flow trading. And to get away from this bullshit you hear online about price action manipulation and all of that stuff that they hunt for stop loss, which is all complete bullshit. While this guy in 2007 was making millions of dollars beating the banks at their own game. If you truly knew how these algorithms move the market and you managed to get that type of information, you're not going to live enough to tell it on YouTube or to sell a mentorship about. They're going to catch you and they're going to put you in jail. So if anyone ever tells you that they've understood the secret of market manipulations and insiders, blah, blah, blah, it's all bullshit. It's all bullshit. Or they're going to get caught at some point. Well, anyway, I hope this story was fun for you to listen. You want to learn more about order flow? Please join the channel. I will see you guys in the next one. Ciao.
