What is fictitious trading?
Simply put, fictitious trading refers to the practice of buying and selling the same financial instruments with the aim of creating a false representation of market activity. This deceptive tactic can have consequences for the integrity and fairness of the market.
In other words, fictitious trading involves an individual or entity acting as both the buyer and seller in the same transaction, creating an illusion of real market activity. In most cases, the goal is not to make a profit from the transaction itself, but to manipulate market perceptions, such as increasing trading volume or influencing price trends. This practice is considered unethical and is illegal in many jurisdictions.
How fictitious trading works
In a typical fictitious trading scenario, an individual or entity places buy and sell orders for the same financial instrument. The goal is to deceive other market participants into believing there is significant trading activity, while in reality, there is no change in the ownership of the assets. Automated trading algorithms or trading bots can be programmed to execute fictitious trades, increasing the frequency and impact of this activity.
Consequences of deceptive fictitious trading
Fictitious trading can have several negative effects on financial markets. First, it can distort market data by creating artificial trading volumes, making it difficult for traders and investors to accurately assess market conditions. Additionally, it can lead to false signals and decisions based on misleading information, as traders may interpret the inflated activity as genuine market interest. This manipulation can undermine the fairness and efficiency of the market, leading to a erosion of trust among participants.