A wash trade occurs when a trader simultaneously buys and sells the same asset, creating the illusion of market activity without actual ownership change. This manipulative practice is banned in regulated markets because it distorts volume, price trends, and investor perception. Wash trading is sometimes used to inflate trading figures on lesser-known crypto exchanges or boost the apparent liquidity of a token. In legitimate trading, wash sales can also have tax implications, as some jurisdictions disallow loss deductions from such trades. Regulators and platforms monitor wash trading to maintain market integrity and protect retail investors.
Example:
An investor simultaneously buys and sells the same security to create misleading activity.
