What is wash trading?

The crypto industry is developing rapidly now due to the high utility potential of the blockchain technology and the opportunity to ensure transparency and fairness of financial market, politics, and business. The most obvious outcome of blockchain progress is the evolution of the traditional financial markets.

However, there are some barriers that can hinder this progress. Cryptocurrency market is still overcrowded with unfair players that are involved in various types of fraudulent activities. The most widespread one is wash trading, which is strictly prohibited on classical financial markets.

Wash trading is a form of market manipulation in which an investor or institution simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the market. In this case, the “financial instrument” is a crypto coin or token.

This is done by a trader or a group of traders buying and selling their own orders for a particular coin. It gives the market the perception that there is interest in a coin when there isn’t really.

It is also sometimes practiced by crypto exchanges in order to inflate their trade volume numbers. This will attract potential retail traders into using the exchange.

In the USA, wash trading was declared illegal in 1936 when the Commodities Exchange Act was passed.

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