What Is the Difference between a “Wash Trade” and a Legitimate Trading Strategy?

A wash trade is a manipulative act where a trader simultaneously buys and sells the same asset to create the false appearance of market activity and volume, without any actual change in beneficial ownership or genuine market risk. A legitimate trading strategy involves genuine risk transfer and the intent to profit from market movements.

Wash trading is illegal because it deceives other market participants about the asset's true liquidity and demand.