ParamountDax on Why Companies Do Wash Trading

By Roberto Al-Hunaiti
As crypto exchanges evolve, so do some of the challenges that come with it. Roberto Al-Hunaiti is the CEO of

As crypto exchanges evolve, so do some of the challenges that come with it. Roberto Al-Hunaiti is the CEO of ParamountDax, one of the few crypto exchanges licensed before its launch date, and serving the needs of the crypto community. Here he shares with FinTech a breakdown of wash trading, and how to combat it:



Crypto exchanges are carrying out the controversial practice of wash trading, whereby administrators, or “washers”, try to manipulate a coin’s price for their own financial gain. Wash trading is executed by buying and selling a coin at the same time, signalling a false interest in the coin being traded. The practice is illegal in the US, but despite this, some companies are actually wash trading their own volume.

If there is a purchase and sale of the same coin at the same price, then that coin is being wash traded. One giveaway of wash trading from an exchange is evidence of prearrangement or evidence that the trades were structured. Another sign is if a transaction was entered or executed with exchange owners having prior or reasonable knowledge that the transaction would produce a wash result.

Why do exchanges wash trade?

Wash trading is a rapidly growing problem, with a recent study by The Bitcoin Transparency Institute revealing that over 60% of all exchanges ranked on popular data sites have little to no real volume, with the fake volume being achieved through wash trading. So why would traders and exchanges do this? Wash trading gives the illusion that a currency is more popular than it is. Popularity is important for an exchange’s value, which is highly dependent on the number of transactions made.

There’s also an opportunity for an exchange to overload a market (also known as spoofing), to undercut the competition and create inflated figures. Said inflated figures can also help boost an exchange's listing on a crypto listing site, which are big business within the industry - fees to be listed on the top exchange rankings can cost an exchange up to $50,000.

Why is wash trading a problem?

Wash trading is a problematic practice for the whole cryptocurrency industry, as it misleads customers, who invest in good faith and whilst an exchange’s price is high. The illusion is soon shattered though, as the volume and value of an exchange can plummet after each wash trade is executed. This can have an impact on the number of customers an exchange gains, achieving the exact opposite of what they intend with their wash trading practices.

As a result of these problems for traders and the industry becoming bigger, there are also serious legal implications for participating in this kind of trading. Although some exchanges may feel that they can get away with wash trading, this is clearly not the case; two South Korean coin traders were jailed recently for faking their volume’s exchange.

What can be done to stop wash trading?

Wash trading is very widespread across many different exchanges, and controlling the spread of the practice is difficult due to the sheer volume of wash trading being executed. However, no problem is insurmountable; so, what measures can be introduced to help stop wash trading?

Regulation seems to be an answer that some influential industry figures are supporting, as it would mean that there was a body to oversee crypto transactions. For example, Mark Carney, Head of the Bank of England has suggested that regulating cryptocurrencies would help to “combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system”.

Greater transparency amongst exchanges could be another way to solve the problem. Exchanges could share data on their liquidity and website viewership to give prospective customers more of an insight into their figures, allowing them to decide whether or not to invest their money. If this data was made available, traders could use it to examine the trading history against the readily-available order book of exchanges to spot suspicious trading exchanges.

A Primary Market Maker (PMM) is being touted as a possible solution. These Primary Market Makers provide liquidity and make money for the exchange. They are independent and reputable, with the idea behind the PMM concept being to allow the buying and selling prices to be set and controlled by the PMM. No one is permitted to front-run their orders by placing a slightly higher order on the chart just before a transaction closes, to try and outsell the trader.

These PMMs have the responsibility of facilitating the smooth flow of financial markets for traders. This enables investors and traders to buy and sell securities easily. The market makers are held to account by the SEC (Security and Exchanges Commission) in the US, or the country’s local jurisdiction over stock market practices.

Market data providers are already taking strides to hold people and exchanges to account for their wash trading actions. Some popular crypto sites that may display chart developments have taken steps to display extra information, including a unique exchanges disclosure registry that offers up more insight into the reliability of trading volume figures. This newly available data on the sites also displays the 24-hour trading volume obtained from cryptocurrency exchanges found not to be involved in wash trading. In a forward-looking step, some platforms have also announced that they will collaborate with reputable exchanges to further improve the quality of their market data.

Cryptocurrency exchanges partake in wash trading for lots of different reasons, mostly for their own financial gain. To combat wash trading, the exchange industry needs both traders and exchange owners to help facilitate change, as otherwise many owners will be able to get away with their wash trading. This then leads to exchanges and the people running them deliberately scamming people out of money that they have invested. Wash trading can give exchanges a competitive edge, but may also lead to their downfall by losing all of their current liquidity and value, which can lead to insolvency. Helping to reduce wash trading throughout the industry will make it more attractive to both customers and new exchanges starting up as a fraud-free, honest trading environment.


Featured Articles

Qlik's Julie Kae: Leveraging Data to Improve Sustainability

In an exclusive interview with Qlik’s Julie Kae, she explores siloed data business challenges and how leveraging data can improve sustainability strategies

Study: More than Half of Companies Lack AI Innovation Skills

Research by SoftwareOne reveals a stark human skills gap in maximising AI and cloud potential, as 97% of companies prioritise upskilling workforces

Devoteam Expands into UK Market, Acquires Ubertas Consulting

Devoteam acquires cloud business and AWS consultancy, Ubertas Consulting, to deliver AWS services to a broader client base and expand into UK markets

NTT DATA: Outdated Tech Holding Back Global Organisations

Digital Transformation

CGG Rebrands to Viridien to Become an Advanced Tech Company

Cloud & Cybersecurity

Zoom Invests in UK Market with Immersive Experience Centre

Digital Transformation