Trading Volume & Wash Trading Explained | Crypto 101 - Learn Crypto Basics
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--- Content Timeline ---
00:00 - Introduction
00:45 - What is Trading Volume
01:38 - What is Wash Trading
02:24 - What is High-Frequency Trading (HTF)?
-- More info --
Hi Sutrapunks, Hope you guys are all pumped up for another Crypto 101.
Today’s topic is Trading Volume in Cryptocurrency and a related term called Wash Trading. So stick around and watch this video till the end.
So without further ado, let’s get started.
What is Trading Volume?
The trading volume of a particular crypto token indicates the amount of cryptocurrency being traded in a specified time. For Example – A 24 Hour BTC Volume indicates the amount of BTC being traded on all the markets and exchanges cumulatively.
When a crypto token is more actively traded, its trade volume is high. Similarly, its volume is low if a token is less actively traded. The volume of a crypto token tells you about the market activity and liquidity of that token available in the market.
The higher volume also indicates good liquidity and better execution of orders.
While deciding whether a crypto exchange is good or bad, 2 factors hold the utmost importance in addition to various other factors, i.e. trade volume of the exchange and its liquidity.
Unfortunately, both of these measuring scales can be faked by exchange through Wash Trading.
💎 What is Wash Trading?
Wash trade is a form of fictitious trade which is also referred to as round trip trading. Also known as volume inflation, it is an unethical practice where investors buy and sell the same crypto asset at the same time in order to manipulate the market.
The practice can unnaturally increase the trading volume in order to make the crypto asset appear as though it is more desirable than it actually is. Further, wash trading can also be used by these malicious traders and brokers to manipulate the crypto asset prices.
Wash trading is sometimes executed by a trader and a broker who are colluding with each other. Further, sometimes wash trades are executed by investors acting as both the buyer and the seller of the security.
💎 What is High-Frequency Trading?
As the name suggests, HFT is all about speed. This technique uses various algorithms to analyze the smallest price changes and discrepancies between the same asset prices on multiple exchanges. Typically, the HFT platforms and systems can automatically open and close several positions per second and aim for short-term goals that would otherwise go unnoticed by our naked eye.
Traditionally, this technique applies to foreign exchange, stock, and other markets. However, over time, high-frequency trading has gained traction in the crypto space, mainly because of the multiple trades per second, offering a slew of benefits.
HFT provides a strong potential for Wash Trading as the same is automated and high speed. It will be very difficult to trace wash trading done through HFT.
In 2012, then-Commissioner of the Commodity Futures Trading Commission, Bart Chilton, announced his intention to investigate the high-frequency trading industry for violations of wash trading laws, given how easy it would be for firms with this technology to enact wash trading under the radar.
In 2013, the Securities and Exchange Commission (SEC) charged Wedbush Securities for failing “to maintain direct and exclusive control over settings in trading platforms used by its customers,” a failure that enabled some of its high-frequency traders to engage in wash trades and other prohibited and manipulative behavior.
According to research by the Blockchain Transparency Institute, approximately 80% of the top 25 trading pairs for bitcoin at cryptocurrency exchanges in 2018 were wash traded.
#TradingVolume #WashTrading #Crypto101 #CryptoTrading
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The content published on CoinSutra Channel is for informational, educational, and recreational purposes only and should not be considered to be legal, tax, accounting, or any other professional advice. I'm not a professional financial adviser, and you should always do your own research. I may hold the cryptocurrencies talked about in the video.
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