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I don't mean to derail the thread here, but I'd appreciate it if someone could explain the difference between a wash trade and scalping? I have done two trades one long MES and one short MES at or near the exact same price, just minutes apart. I thought the wash rule targeted equities, but it looks like it got it's start from commodities back in the '30s. It seems to me from what I've read that "wash" is a little subjective?
Rule 534 (“Wash Trades Prohibited”)
No person shall place or accept buy and sell orders in the same product and expiration
month, and, for a put or call option, the same strike price, where the person knows or
reasonably should know that the purpose of the orders is to avoid taking a bona fide market
position exposed to market risk (transactions commonly known or referred to as wash
trades or wash sales). Buy and sell orders for different accounts with common beneficial
ownership that are entered with the intent to negate market risk or price competition shall
also be deemed to violate the prohibition on wash trades. Additionally, no person shall
knowingly execute or accommodate the execution of such orders by direct or indirect
means.
To make it simpler, it's when you are both long and short the same thing at the same time for the same amount, so you never have an actual market risk, but you do create the impression of more actual trading activity than there really is. The purpose is obviously to draw in other traders. I'm sure every market has a similar rule.
It's not the same as scalping. If the trades are minutes apart, they have plenty of opportunity to lose you money. You could lose on the long and then, moments later, lose on the short too. They are risk-free only if you are actually simultaneously long and short, so there's no actual net position being taken.
There may be a "subjective" element in the part about:
"where the person knows or
reasonably should know that the purpose of the orders is to avoid taking a bona fide market
position exposed to market risk,"
but the point is that you shouldn't be long and short at the same time in a way that eliminates any risk to you. This would not be actually that subjective in application: you would probably find the presumption to be that you intended to do this, just from the fact that you have the long and short together, and you would have to make the case that you didn't, which generally would be a hard case to make.
There's a discussion in another thread on this very point, where @kevinkdog related a situation where he had two separate automated strategies that independently took opposite positions, and his broker told him "No, that's a rule violation." He argued with the broker's compliance department and CFO and eventually won. I would not call this a subjective case, just one that is generally very hard to prove, since you'd need to argue that the trades were actually independent and not intended to wash each other out.
Technically yes it violates Exchange rules (I don't know about it violating a hedging rule). The exchange can look at this as you trading against yourself in order to create fake volume or open interest. Just this week, I got a notice from one of …
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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@Arch I would point out that he's admitting that wash trading happens in crypto, and then justifying it by saying that it also happens on the NASDAQ, as if that's a documented fact. A quick google search for 'nasdaq wash trading' or 'nasdaq wash trading accusations' doesn't show much. I'm not saying it doesn't happen, I'm just saying maybe you should ask why he would say something like that.
Just to clarify on @bobwest's point, while it is true some brokers really don't like you being long and short the same product at the same time, wash trading is specifically about the execution of a buy and sell order in the same product, at the same time, and at the same price with the intention of not taking any risk/position. It's not about holding/having positions.
However the cme offering a Bitcoin future and ether allows some genuine carbs for those with the.machine power and this obviously has exchange rules. The arbs help keep it a little more stable and real but that's only the crypto with bonafide cme futures
Lots of manipulation in all mkts but crypto..ridiculous
Can it be traded sure...I'm long polka dot now on a long term hold from around 7.23 I think..I haven't looked at my Coinbase acct in a long time
I like coin bidu baba root up bq and ccl for stocks right now on. Long term holds
