The systematic monitoring and analysis of trading activity to detect and prevent wash trading, an illegal practice where an investor simultaneously buys and sells the same financial instrument to create misleading market activity and artificial price or volume signals. In crypto, this is crucial for market integrity.
Mechanism
Wash trading surveillance systems employ advanced algorithms and data analytics to scrutinize trade data, identifying patterns indicative of self-trading or coordinated trading between closely related accounts. The mechanism involves collecting high-resolution order book data, transaction records, and account metadata across all trading venues. Algorithms analyze trade sizes, frequencies, price movements, and participant identifiers to flag suspicious sequences of matching buy and sell orders. Machine learning models are often used to detect subtle, obfuscated wash trading schemes that mimic legitimate market activity.
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