Wash trading, also known as round trip trading, is an illegal practice in which investors simultaneously buy and sell the same financial instruments in order to manipulate the market. The practice can artificially increase trading volume in order to make the security appear more desirable than it is. It may also be done to compensate brokers with commission fees for securities that they cannot settle outright.

Wash trading is a form of market manipulation where a trader buys and sells the same financial asset simultaneously, creating the illusion of high trading activity without actual market risk or ownership change. The purpose of wash trading is to artificially inflate trading volumes, misleading other investors into thinking there’s increased demand or liquidity for an asset.

This deceptive practice can influence prices, making them appear more stable or active than they are, which can lure unsuspecting traders into making decisions based on false information. Wash trading is illegal in many markets, including stock and cryptocurrency exchanges, as it distorts market transparency and undermines fairness. Regulatory authorities, like the SEC, impose strict penalties on individuals or firms found engaging in wash trading.