When you trade a any security to yourself (or someone closely related to you) to give the illusion of the price going up. (EDIT: Well... it could be for any reason. But illusion of price going up is one such application of the strategy).
Lets say you invent a new NFT. You sell the NFT to __yourself__ for $100. Then, you sell the NFT to yourself (again) for $200. Finally, you sell the NFT to yourself for $1000. Then you go to the public and say "Look, my NFT has grown 1000% in the past week, you should get in on it!!"
Then they buy the NFT from you for $500. Then suddenly they can't sell the NFT to anyone, because you were the only one buying ever.
You do NOT need to change the prices for it to be a wash trade.
What you gave me a profitable and likely illegal example of a wash trade, but not a definition of wash trade.
A wash trade could be selling thing X for $100 and buying thing Y for $100 where X and Y are the same exact underlying thing. Just moving pointless trades back and forth inflates volumes, which makes people thing the market is moving.
> You do NOT need to change the prices for it to be a wash trade.
No you don't. But you do need to be buying and selling the underlying repeatedly for "some reason".
That "some reason" could be fraud, or it could just be tax-optimization. The important thing is, "wash trading" is the technique of buying-and-selling the same thing at nearly the same time... which has many many applications.
Many of those applications are illegal and fraudulent in a traditional market. So seeing something like 70% of the volume of the real world cryptomarket being wash trading suggests that there's more fraud in the cryptomarket than people generally realize.
All exchanges, even legitimate ones, offer discount packages on anyone who has high volume.
Ex: Interactive Brokers (a legitimate online exchange for stocks) hit it big with its monthly-subscription model: $$subscription / month $20 / for severely discounted trades (fractions of a penny per trade). https://www.interactivebrokers.com/en/index.php?f=1590&p=sto...
Yeah, I get it, but unlike stock transactions crypto exchanges generally take a % of volume traded unlike stock exchanges which take a per-transaction fee instead (I think options might be an exception where there's a per-contract fee..not sure).
If you're about to dump $10,000 to $100,000 worth of fees upon an exchange per month so that you can perform price manipulation (or whatever), you give the exchange a call.
They'll answer. You explain to them that you want to give them $50,000 / month (or something) for 10-million trades/month or whatever.
If they let you, you do it. If they don't, call up another exchange and give them the same offer.
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Its called business. When the $$$ amounts go up beyond a certain amount, you make it worth their while to treat you specially. They want the volume, you want the trades. Old-school business, just talk with them and things happen.
This is exactly right, in fact if you think about tax breaks on losses it can actually make a lot of sense to sell yourself the same asset at a loss. In the case of crypto you probably wouldn't sell an NFT at a loss, but a coin would definitely make sense to sell to yourself at a loss.
What robo advisors can do.. is sell say.. asset A that perfectly tracks an asset (say S&P 500)... and then buy asset B that perfectly tracks an asset (say S&P 500).
So you end up with the "same thing" at the end of the day, but got to harvest some losses.
That said, I think there are some iffy legal situations here, and you run the risk of breaking the law here.
TLH is real, but "sell yourself the same asset at a loss" sounds fishy to me.
Because with TLH its not "the same asset" in that its not
(a) the literal same item moved from one hand to the other.
(b) its not the same item ticker (basically a day trade across accounts)
(c) Its not buying/selling with yourself
Yes this works with NFTs but does not work with fungible money because there are typically thousands of people willing to sell once the price goes from 100 to 200.
Lets say you invent a new NFT. You sell the NFT to __yourself__ for $100. Then, you sell the NFT to yourself (again) for $200. Finally, you sell the NFT to yourself for $1000. Then you go to the public and say "Look, my NFT has grown 1000% in the past week, you should get in on it!!"
Then they buy the NFT from you for $500. Then suddenly they can't sell the NFT to anyone, because you were the only one buying ever.
Congrats, you just scammed someone for $500.