- It is a tax evasion trick for investors
- It is better known as insider trading
Wash trading means round tripping of financial instruments, in other words, buying and selling of instruments at the same time to increase the volume of trade of particular security.
It is an illegal activity. For more relevance to the topic, it is also known as “insider trading”, a more popular word than wash trading or easy to identify word for a topic.
The true wash sale term is 61 days – 30 days before, 30 days after, and the day of the sale.
No two traders can trade among themselves it is treated as wash trading and an investor buying or selling any company’s stock within 30-days period is termed as Insider Trading
https://corporatefinanceinstitute.com/resources/capital-markets/wash-trading/
Wash trading is manipulation of market trends and is regulated by rules and regulation for not exploiting loopholes of the market. It can influence the decision of other traders as it will increase the liquidity of shares in the market.
Wash trading is a trick for tax evasion. Before 1984, investment losses were tax deductible, investors saw this and found a way to benefit from it, they used to sell their share at loss and then immediately buy it back and exploit the loopholes of the system and do tax evasion.
https://www.wallstreetmojo.com/wash-trading/
How to identify whether a potential wash trade is done or not?
It can be done by two checks- trader ID, TT score, if trade is executed at the same time, at thesame price against the same exchange-traded instrument then TT score determines whether trade executed from same trade ID or same account.
