Wash Trading is an illegal form of stock manipulation in which an investor simultaneously sells and buys shares in order to artificially increase trading volume and thus the stock price. It is an unethical practice designed to make it appear that a purchase and sale has occurred even though no change in ownership occurred. It is considered to be highly illegal, and offenders are punished quite severely. People do Wash Trading to make other investors think that the stock is over active. It is usually done to help increase a stock’s price. For example, an investor might simultaneously buy and sell shares in one company through two different brokerage firms in order to create the appearance of substantial trading activity that will draw in other investors.
People do this type of manipulation to create “buzz” around a stock in hopes of making quick gains. This is a market-manipulation practice used to misrepresent the number of transactions occurring on any given day. Wash trading artificially inflates volume and revenues, but in reality adds no profit.
Investors who are found engaging in this type of activity are often subject to censure on the part of the exchanges and may face penalties or possibly imprisonment for the attempt to defraud other investors.[ Image Credit : Flickr ]