Wash trading is a deceptive practice where an investor artificially inflates an asset’s trading volume and price by repeatedly buying and selling it to themselves.

Understanding Wash Trading

Date: Jul 11, 2023 | Updated: Jul 19, 2023

Imagine a scenario where an asset is bought and sold—by the same party, no less—creating a misleading aura of bustling activity. This is the core of wash trading, a deceptive maneuver in the financial realm. It’s a tactic where the same assets, be it NFTs, cryptocurrencies, or stocks, are sold and repurchased almost simultaneously. The goal? To falsely inflate the asset’s value or trading volume.

How Does Wash Trading Work?

Let’s take Gigi’s case. She owns 300 shares and wishes to hike their perceived value. She sells them to John and buys them right back, under the guise of Ogee. This ruse suggests a high demand, pumping up the stock’s price artificially. Such schemes are not just limited to stocks but also thrive in the crypto space, particularly with NFTs and digital assets of low liquidity.

Signs of Wash Trading in Crypto

These red flags signal to investors that something might be amiss. Wash trading creates an illusion of value and demand, potentially trapping unwary investors into overpaying for an asset.