Skip to content
GetProfitable
Search
Dictionary

Wash trade

A trade in which the same beneficial owner is on both sides, producing no real change in ownership. Prohibited on futures exchanges even when accidental.

Wash trades create fake volume and fake prices, which is why the rules ban them outright rather than only when intent to deceive can be shown. Exchange surveillance flags accounts whose buys and sells match each other, and firms are fined for failures of supervision as well as for deliberate schemes.

The rule is strict enough that ordinary firms need technical controls; see self-match-prevention. Note that a wash trade in futures is a different thing from the tax-oriented wash-sale-rule that applies to securities.

Example: a fund trading through two brokers buys 50 contracts at 4,510 through one and sells 50 at 4,510 through the other within the same second. Volume prints 50 lots that represent no economic transfer, and the exchange will ask questions.

Related: self-match-prevention, market-manipulation, spoofing, wash-sale-rule, cftc

Educational only, not advice. Spotted an error? Post in Site Feedback.