A wash trade is a type of fictitious trade where a transaction or series of transactions give the appearance of an actual purchases or sales, but in fact are entered into without the intent to take an actual market position or to expose the transactions to market risk or price competition. Specifically, CME Group prohibits as wash trades three types of conduct:
- placing or accepting buy and sell orders in the same product and expiration month where the person placing or accepting the orders “knows or reasonably should know that the purpose of the orders is to avoid taking an actual market position exposed to market risk”;
- entering buy and sell orders for different accounts with common beneficial ownership “with the intent to negate market risk or price competition”; or
- knowingly executing or accommodating the execution of either of the types of orders in 1 or 2, above.
Here is the full CME Group 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 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.
This is very serious offense. Per our trade compliance, if you place a wash trade we will provide you a warning notice, with this explanation, so you will know what it is and NOT do it again.
If you place another wash trade after receiving this notice, you be at high risk of compliance disabling your account from Live Trading (No New orders will be accepted).
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