What is Wash Trading?
Wash trading is an illegal practice that involves creating artificial volume and liquidity in a market by trading a financial asset among oneself or a group of individuals or entities. Here are a few examples of wash trading:
In the cryptocurrency market, wash trading can create a false impression of trading activity, influencing the asset price. For example, an individual or group of individuals may create multiple trading accounts and use these accounts to buy and sell the same asset simultaneously to create the illusion of actual trading activity.
In the stock market, wash trading can be used to manipulate the price of a stock. For example, an investor may create a fake trading account and place many buy orders for a stock they own, creating the impression of increased demand for that stock. They may then sell their shares to these fake accounts at a higher price, increasing the stock's price artificially.
In the commodities market, wash trading can be used to manipulate the price of a commodity. For example, a trader may purchase and sell an item at the same price and simultaneously create the impression of actual trading activity. This can increase the commodity's price, allowing the trader to sell their holdings at a higher price.
It is important to note that wash trading is illegal and can result in significant penalties and fines. It can also harm the market's integrity and investors' trust in that market.