How Is ‘Wash Trading’ Detected in a Derivatives Market?
Wash trading in a derivatives market is detected by surveillance systems that flag transactions where the buyer and seller are the same or related entities, resulting in no change in beneficial ownership. Detection involves monitoring for high-volume, self-matched trades, particularly those that occur at or near the current market price.
On a CEX, internal matching engine rules (Self-Trade Prevention) are the first line of defense. Surveillance also looks for patterns of simultaneous buying and selling across multiple, linked accounts to bypass STP.
