What It Means
A wash trade is an illegal practice of simultaneously buying and selling the same security — often through connected accounts — to create the appearance of trading activity without any real change in ownership.
How It Works
The intent behind a wash trade is usually to manipulate a stock's apparent volume or price, making it look more actively traded or more in-demand than it genuinely is, to lure in other buyers or to manipulate a settlement price. SEBI and exchange surveillance systems flag unusual trading patterns — trades between related accounts, price and volume spikes with no genuine external buying interest — specifically to catch this kind of activity, and violations carry serious penalties. It's distinct from ordinary high-frequency or algorithmic trading, which involves genuine risk-taking and price discovery even at high speed; a wash trade has neither.