How wash trading works
One party places a buy order and a matching sell order, from one account, from two accounts it controls, or with an accomplice. The trade is published like any other, and the party ends where it started, less fees. The motives vary:
- Making a token or a venue look liquid, to attract traders and listings
- Climbing an exchange's volume-based fee tiers, or earning rebates
- Collecting rewards that are paid per trade
- Setting a price, for example before a sale or a valuation date
- Giving an NFT a sales history
What MiCA says about wash trading
Title VI of MiCA sets the EU's market abuse rules for crypto-assets admitted to trading, wherever the transaction takes place, and does not use the words wash trading. Article 91 prohibits market manipulation. That includes, unless carried out for legitimate reasons, entering into a transaction or placing an order that gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of a crypto-asset.
Under Article 92, any person professionally arranging or executing transactions in crypto-assets has effective arrangements, systems and procedures to prevent and detect market abuse, and reports a reasonable suspicion to its authority without delay.
How an exchange prevents wash trading
Self-trade prevention in the matching engine cancels or rejects an order that would match another from the same account or owner. Surveillance looks for what that cannot catch: accounts that trade mostly with each other, shared devices or funding sources, and volume with no change in net position.
Wash trading, spoofing or market making?
- Spoofing
- Placing orders with no intention to trade, to mislead others, then cancelling them. Wash trading does execute trades, with oneself.
- Market making
- Quoting both sides to trade with others and earn the spread. The maker takes real risk, and its counterparties are independent.
Where Wash trading shows up in a platform
Modules that do the work
- Matching engineA low-latency order book for spot markets, with market makers and outside liquidity.
- Analytics & monitoringProduct analytics, attribution, engagement and crash reports, on a tracking plan you control.
- Compliance reportingTransaction monitoring, the Travel Rule and regulatory reports, ready for your regulator.
- Fraud & riskReal-time fraud scoring, limits and case management, with the risk engines you already trust.
Platforms that need it
Guides that go deeper
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.