What is Wash Trade?
A wash trade, also known as a “self-trade” or “matched orders”, is an illegal practice in which an investor simultaneously sells and buys the same financial instrument to create misleading activity in the market. It can be used to manipulate prices, volumes, and other market data for personal gain. The term comes from stock trading where traders would buy and sell shares at the same price in order to inflate trading volume figures.
Wash trades are prohibited by many regulatory authorities around the world due to their potential impact on markets. In particular, these types of trades can be used to artificially increase volatility or liquidity in certain securities while creating false impressions of supply and demand. They may also be used to hide money laundering activities or fraudulently boost profits by inflating trading volumes or prices.
In cryptocurrency markets, wash trades are less common than they are in traditional equity markets but still exist nonetheless. Because of this, it’s important for investors who use digital currency exchanges (DCEs) for trading purposes to remain vigilant about their transactions – not only for financial reasons but also because DCEs have been increasingly subject to government scrutiny regarding suspicious activity such as wash trades occurring within them.
