What it is
This manipulative practice involves an individual or entity acting as both the buyer and seller in a transaction, or coordinating with others to do so, without any change in beneficial ownership. The purpose is to generate artificial trading activity, making an asset appear more liquid or in higher demand than it actually is. This can deceive other market participants into believing there is genuine interest and value, influencing them to trade based on false signals.
Wash trading is illegal in traditional financial markets and is also prohibited in crypto markets by regulators like the CFTC and SEC. It often occurs on less regulated exchanges or for illiquid assets, where it's easier to create the illusion of volume. News about enforcement actions frequently cites wash trading as a key component of market manipulation. Retail investors should be aware that high trading volume for an asset doesn't always indicate genuine interest.
Why it matters
Wash trading creates false impressions of demand and liquidity, potentially misleading retail investors into making poor investment decisions.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice