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A wash trade (not to be confused with a wash sale) is a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments. This may be done for a number of reasons:
- To artificially increase trading volume, giving the impression that the instrument is more in demand than it actually is.
- To generate commission fees to brokers in order to compensate them for something that cannot be openly paid for. This was done by some of the participants in the Libor scandal.
- Some exchanges now have protections built in, sometimes mandatory for participants, such as STPF (self-trade prevention functionality) on The ICE.
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