- 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 the 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 the 30-day period is termed Insider Trading
Wash trading is the manipulation of market trends and is regulated by rules and regulations for not exploiting loopholes in 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 a loss and then immediately buy it back and exploit the loopholes of the system and do tax evasion. How to identify whether a potential wash trade is done or not?
It can be done by two checks- trader ID, and TT score, if the trade is executed at the same time, at the same price against the same exchange-traded instrument then the TT score determines whether the trade is executed from the same trade ID or same account.
