Crypto glossary
Wash trading
Wash trading is buying and selling the same asset with oneself or a colluding party to fake trading volume and mislead other market participants.
In a wash trade, the same person or group sits on both sides of a transaction, so ownership does not really change. Repeated many times, these trades inflate trading volume and can create the impression of strong demand, or of a price level that the market would not otherwise support.
In crypto it has been used by exchanges to climb volume rankings, by token projects to look liquid enough for listings, and by NFT traders who pass collectibles back and forth between their own wallets to lift floor prices or farm marketplace rewards. Because blockchain transactions are public, analysts can sometimes link the wallets involved, and US prosecutors have charged market-making firms with wash trading tokens.
Wash trading is illegal market manipulation in regulated markets. For users, the practical lesson is that reported volume, especially on smaller exchanges or for new tokens, may be heavily inflated, so liquidity is better judged by order book depth and real execution prices than by headline figures.
Example
If two wallets controlled by the same trader pass an NFT back and forth ten times at rising prices, the collection's sales history shows ten trades even though no outside buyer was ever involved.
