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Wash Trading
Wash trading, an illegal form of trading in most jurisdictions, is a form of trading where a market participant sells a specific amount of an asset they hold, such as stocks, bonds, or cryptocurrency assets, and simultaneously or shortly thereafter reacquires the same asset by purchasing back the same amount (or a very close amount to the original amount).
This is called wash trading, as it ‘washes’ the old assets through the market by disposing of those held for a period of time and reacquiring new assets freshly purchased. Wash trading is performed by market participants to achieve several objectives, including tax evasion and artificially increasing trading volumes.
Key Takeaway
Wash trading is a form of trading where an asset is sold and bought back simultaneously or in close succession. Wash trading is an illegal form of trading in most jurisdictions.