How does a wash trade work?

The intent of the parties involved in the wash trade and the result of such a transaction lets wash trading fulfill its purpose.

A wash trade happens when an investor buys and sells tokens of the same asset simultaneously. The definition of wash trades, on the other hand, goes a step farther and considers the investor’s objective or intent and the result of the transaction.

The intent of traders or investors should be related to wash trading, and they should have bought and sold assets with common beneficial ownership within a short time. Beneficial ownership refers to accounts held by the same person or company.

Financial regulators may be interested in trades made between accounts with common beneficial ownership since they could indicate wash trading activity. Nonetheless, wash trades don’t always have to involve real deals; they can also occur when investors and dealers appear to conduct the transaction on paper, but no assets are exchanged.