at least according to the FBI.
the scheme went something like this:
- Sarao would offer multiple trades for sale below market price;
- bid market price would drop to meet perceived supply;
- Sarao would cancel the trades automatically when the price got too close to his ask, then
- the market price would stabilize again.
in the meantime, he was making money on the futures, because he knew precisely when the price would drop.
ingenious, but it relied on other people mis-valuing the market.
GLAL,
R.
http://www.justice.gov/opa/pr/futures-trader-charged-illegally-manipulating-stock-market-contributing-may-2010-market-flash
http://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/04/21/sarao_criminal_complaint.pdf
