Wash Trade

A wash trade is a form of market manipulation in which a trader simultaneously buys and sells the same security — creating artificial trading volume without genuine change of ownership or economic intent — with the objective of misleading other market participants about the actual level of trading interest in that security. By creating the appearance of high volume and active trading in a thinly traded stock, wash traders aim to attract genuine buyers who interpret the artificial activity as signs of investor interest — facilitating a subsequent pump-and-dump scheme or simply inflating the stock's liquidity profile to mislead investors. Wash trading can be executed by a single participant trading between two accounts or by two colluding parties who reverse transactions between themselves. In India, wash trading is explicitly prohibited under SEBI's Prevention of Fraudulent and Unfair Trade Practices Regulations — it constitutes a serious market manipulation offence subject to heavy fines, disgorgement of profits, and criminal prosecution. SEBI's market surveillance systems monitor patterns of circular trading and wash trading in real time — particularly in thinly traded small-cap and SME-listed stocks where such manipulation is most feasible due to low natural trading volumes. Investors should be alert to stocks showing high volume spikes with minimal price discovery — where the same price levels are traded repeatedly — as potential indicators of wash trade activity that could precede a sharp price reversal when the manipulation ends