wash sale

n.
The illegal buying of stock by a seller's agents to give the impression of an active market.

An illegal transaction an investor makes by simultaneously buying and selling a security through two different brokers, thereby creating the illusion of activity. Investors do this to try and recognize a tax loss without actually changing their position.

Investopedia Says:
The effectiveness of this strategy has been greatly diminished with the implementation of the IRS 30-day wash rule, where a taxpayer cannot recognize a loss on an investment if that investment was purchased within 30 days of sale (before or after sale).

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1. Sale and repurchase of securities within a short period of time to give the appearance of trading activity, sometimes done by stock manipulators to give the impression of trading activity and to raise stock prices. Sales between two people to boost prices, and induce investors to buy, are now prohibited by stock exchange rules.

2. Disallowed tax loss resulting from sale of a security at a loss in a 30-day period, followed by a repurchase of the same or a substantially identical security, or purchase of a call option, in the next 30 days. Internal Revenue Service rules disallow tax losses involving sale and purchase of the same or substantially identical securities within a 61-day period. To be dissimilar, securities must have different interest rates, voting power or earnings power, or, in the case of bonds, different maturities. Only traders are exempted from the IRS rule that losses from wash trading have to be recognized when the trades took place.

This entry contains information applicable to United States law only.

The buying and selling of the same or a similar asset within a short period of time.

A fictitious type of arrangement whereby a broker, upon receiving an order from one individual to purchase and an order from another individual to sell a certain amount of a particular stock or commodity, transfers it from one principal to the other and retains the difference in value.

For the purposes of income tax, losses on a wash sale of stock may not be recognized as capital losses if stock of equal value is obtained within thirty days prior or subsequent to the date of sale.

Various stock exchanges disallow this practice because the orders to buy and sell should be executed separately to the advantage of each of the broker's clients.