Short answers, pulled from the story.
Wash trading is a form of market manipulation in which an entity simultaneously sells and buys the same financial instruments. This action creates a false impression of market activity without incurring market risk or changing the entity's market position.
The United States enacted the Commodity Exchange Act (CEA) in 1936 to prohibit wash trading specifically. Regulated stock exchanges have implemented protective measures such as Self-Trade Prevention Functionality (STPF) on the Intercontinental Exchange (ICE).
Artificially inflating trading volume gives the impression that a financial instrument is more in demand than it actually is. Generating commission fees to brokers serves as compensation for services that cannot be openly paid for.
Data indicates that from the inception of the market until January 2023, wash trading volumes amounted to approximately $26.88 billion. This figure dwarfs the $10.46 billion recorded in non-wash trades during the same period.
In unregulated emerging markets such as cryptocurrency, the practice is common and often goes unchecked because traders operate with minimal transparency regarding their identities or account connections. The speed of algorithmic execution makes detection nearly impossible for human monitors.