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One trading term that has attraction recently is wash trade. An audit carried out by PricewaterhouseCoopers on the crisis-ridden National Spot Exchange Ltd revealed that a few broking houses had indulged in wash trade. Per se, wash trade is illegal and not genuine.
Wash trade is a process of buying commodities or shares through one broker and selling it through another.
This will make to appear as if the volume of trading in a particular commodity is higher, due to repeated buying and selling by some investors.
However, the underlying fact is that the commodity or share would never have changed hands.
Some unscrupulous traders indulge in wash trading to manipulate the market and force other investors to take up positions in the market without any proper fundamental reason.
The other reason why wash trade is done by some broking houses in particular is to generate more commission for brokers.
This is sometimes done to compensate the brokers for something that the latter cannot be openly paid for.
Such a thing was done in the Libor scam in which a Royal Bank of Scotland trader colluded with his counterpart in UBS to pay bribes totalling $330,000 (₹1.97 crore) to brokers who were willing to manipulate the interest rates.
In this case, brokers bought from UBS and sold it back to raise the volume to $100 billion.
The Royal Bank of Scotland was fined $613 million (₹3,669 crore) for manipulating the interest rates.
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