Lesson Stocks 201

Wash trading

Learn what wash trading is

Wash trading is a practice in which an individual buys and sells the same security, at the same price simultaneously, typically resulting in no change of beneficial ownership. Regardless of the individuals’ intention, doing so may be perceived as  creating false and artificial pricing/trading volumes in the marketplace, causing other investors into thinking that the security is in higher demand than it truly is.

Example of a wash trade:

John Doe owns shares of a stock in his account. He proceeds to sell the shares from the account and simultaneously buy it at the same price in another account in his name. As these shares have simply switched between accounts with the same beneficial owner (John Doe) this is considered a wash trade.

Wash trading is illegal under U.S. and Canadian law. We have measures in place to detect and block this illegal activity, and as a result, in some cases, orders with a high wash trading probability may be rejected. Having said that, individuals must be cognizant of the orders they are placing and avoid such an activity.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.

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