Wash Trading

Wash trading is a form of market manipulation where an entity simultaneously or nearly simultaneously buys and sells the same financial instrument to create artificial trading volume and misleading market activity signals without incurring genuine market risk or changing beneficial ownership.

In traditional finance, wash trading is explicitly prohibited under securities and commodities laws as it deceives other market participants about the true level of supply, demand, and price discovery. Manipulators use wash trading to create the appearance of active trading interest, attract legitimate investors seeking liquid markets, manipulate prices through coordinated self-dealing, or generate exchange fee rebates and incentive payments.

Crypto markets experience pervasive wash trading, with multiple studies estimating 60-90% of reported volume on unregulated exchanges represents wash trades executed by market makers, exchange operators, or token issuers. NFT markets have exhibited extensive wash trading where the same wallet transfers tokens between related addresses to inflate floor prices and trading histories. Detection methods include analyzing patterns of trades at identical prices between related accounts, simultaneous offsetting orders, and blockchain analysis revealing common controlling entities. Regulated exchanges implement surveillance systems monitoring for wash trading patterns, though enforcement remains limited in offshore and decentralized markets. MiCA and national crypto regulations increasingly prohibit wash trading and require market surveillance systems comparable to traditional securities markets.