What Is Wash Trading? Wash trading is a process whereby a trader buys and sells a security for the express purpose of feeding misleading information to the market. In some situations, wash trades are executed by a trader and a broker who are colluding with each other, and other times wash trades are executed by investors acting as both the buyer and the seller of the security.
Wash trading misleads investors into believing that trading volumes for a security are higher than they actually are, potentially increasing legitimate trading activity on the security in the process.