Wash Trade

Wash trading is the practice of a trader buying and selling securities with the specific intent of providing false information to the market. Wash trades are sometimes carried out by traders and brokers who are conspiring with one another, and other times they are carried out by investors who are simultaneously the buyer and the seller of the security.

In order to increase genuine trading activity on security, wash trading tricks, investors, into thinking that trade volumes for that security are higher than they actually are. The Internal Revenue Service (IRS) forbids taxpayers from deducting losses from wash trades from their taxable income since wash trading is illegal in the United States.