SIE practice questionhardMarket Manipulation
Two traders agree to buy and sell the same stock between themselves to create the appearance of active trading and attract other investors. This illegal practice is called:
- AMatched orders / wash trading✓ Correct answer
- BArbitrage
- CShort selling
- DDollar-cost averaging
Explanation
Why A — Matched orders / wash trading
Matched orders, wash trading, or painting the tape involve prearranged trades between parties to create a misleading appearance of active trading in a security. The purpose is to artificially inflate volume and attract unsuspecting investors. Short selling and arbitrage can be legitimate trading strategies, and dollar-cost averaging is an investment technique.
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