Wash Trade
In short: A wash trade is a form of market manipulation in which a trader, or several traders acting together, both sell and buy the same cryptocurrency, creating…
A wash trade is a form of market manipulation in which a trader, or several traders acting together, both sell and buy the same cryptocurrency, creating artificial activity in the market. No real change in ownership or risk takes place.
Why it matters
Wash trading inflates volume, which can make a token look more popular or liquid than it is, lift it in rankings based on volume, or make an NFT appear to sell for a high price. It is prohibited in many traditional financial markets. For anyone reading market data, volume alone is weak evidence of real interest. Order book depth, the spread between bids and asks, and a varied mix of trade sizes say more about genuine activity.
Example
One person controls two accounts on an exchange. They place a sell order from the first account and immediately fill it with a buy order from the second, at the same price. Repeating this many times makes the market's volume look large, although no one else traded and the person's combined holdings barely changed, apart from the fees they paid.