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Wash trading

Wash trading is a dishonest market manipulation technique, and it refers to a sale in which a trader is selling an asset, then repurchasing it at or about the same time as the sale, in an attempt to influence the price or trading activity for that asset.

Essentially, wash trading is a process whereby a trader buys and sells an asset or asset shares for the express purpose of feeding misleading information to the market in order to artificially raise the valuation of that asset or security. Sometimes, wash trades are executed by a trader and a broker who are colluding with each other, or they can be executed by investors acting as both the buyer and the seller of the security.

It is possible sometimes for investors and brokers to commit wash trades inadvertently, but that is not an excuse as wash trading is still both illegal and unethical. To avoid wash trading, it is important to be aware of this pitfall before they trigger a wash trade. The dangerous moment usually comes when tax losses are recognized. It happens when an investor disposes of an investment at a loss and then buys the same or almost identical investment within 30 days of the sale, either before or after.

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