Head-Fake Trade

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Definition of 'Head-Fake Trade'

A head-fake trade is a type of deception used by traders to manipulate the market. It involves making a large purchase or sale of a security in order to create the illusion of a trend, which then encourages other traders to follow suit. Once the desired effect has been achieved, the trader who initiated the head-fake trade can then sell or buy the security at a higher or lower price than they originally paid.

Head-fake trades are often used by market makers, who are large institutions that facilitate trading by providing liquidity to the market. Market makers make money by buying and selling securities at slightly different prices, so they have a vested interest in creating volatility in the market. Head-fake trades can also be used by individual traders, who may try to use them to take advantage of other traders who are not aware of the deception.

Head-fake trades can be difficult to spot, but there are a few things to look for. One sign is a sudden and large increase in volume, which can indicate that a large trader is entering or exiting the market. Another sign is a sharp change in price, which can also be caused by a large trade. If you see these signs, it is important to be cautious and do your own research before making any trades.

Head-fake trades can be very profitable for the trader who initiates them, but they can also be very risky. If you are not experienced in trading, it is best to avoid head-fake trades altogether.

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