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Wash Trading Meaning

Wash trading involves simultaneously buying and selling the same financial instrument to create the illusion of market activity and manipulate prices. The trader, or group of traders, executes trades with themselves or through collusion, artificially inflating volume and potentially influencing market sentiment.

In traditional finance, wash trading is illegal because it misleads investors and can artificially move prices. In crypto markets, wash trading can occur on unregulated exchanges to boost perceived liquidity or qualify for listing milestones.

On-chain metrics and blockchain analytics tools help identify patterns indicative of wash trading.

Regulators and exchanges are working to detect and punish wash trading to maintain fair and transparent markets.

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