What Is a Wash Trade in Futures Trading? The Two Things the CFTC Has to Prove

A wash trade is a buy matched against a sell in the same futures contract and the same delivery month, at the same price or close to it, arranged so that the trader ends up with the position and the risk they started with. The Commodity Exchange Act prohibits it: 7 U.S.C. 6c(a)(1) and (2) reach anyone who offers, enters into or confirms a futures transaction that is, in the statute's words, “of the character of, or is commonly known to the trade as, a 'wash sale'”.

Proving one takes two steps, and neither of them counts how often you trade: the Commission has to show that the trades produced a wash result, and that the trader intended that result. The offence is structuring a purchase and a sale so that they cancel each other.

What is a wash trade in futures trading?

A wash trade is a transaction, or a pair of them, that creates the appearance of a purchase and a sale while leaving the trader's market position where it was and exposing them to no market risk. That is how the CFTC's own glossary puts it under the entry Wash Trading, which records that the Commodity Exchange Act prohibits the practice and that it also travels as wash sale and round trip trading — look either up and the glossary sends you back.

The glossary files it inside a wider family. Its Fictitious Trading entry covers wash trading, bucketing and cross trading together, as schemes that look like trading with no bona fide, competitive trade behind them. The CFTC's September 2025 administrative order in Docket 25-08 draws the same line and cites its own 1988 Gimbel decision for it: a wash sale is one form of fictitious sale.

The order gives the purpose of the competitive-execution rule as directing trades into one marketplace, where they take part in setting the price. A trade whose two sides were always going to meet each other adds a print to the tape without adding competition to it, and the tape then reports volume nobody was at risk in.

Is wash trading illegal in futures?

Wash trading is unlawful under 7 U.S.C. 6c(a), the Commodity Exchange Act's prohibited-transactions section. One episode can breach a CFTC regulation at the same time — the Commission's September 2025 order found violations of both the statute and Regulation 1.38(a) on the same trades — and every designated contract market is separately required to carry, and to be able to sanction, its own rule against the practice.

The statute is 7 U.S.C. 6c(a). Paragraph (1) reaches any person who offers, enters into or confirms the execution of a transaction of the kind paragraph (2) describes, where that transaction is used, or could be used, to hedge an interstate-commerce transaction in the commodity or in its product or byproduct, to fix the price basis of such a transaction, or to deliver the commodity in interstate commerce in execution of the transaction. Paragraph (2) supplies the kinds: a transaction of the character of a wash sale or an accommodation trade, or known in the trade by either name; a fictitious sale; or one used to put a price into the record that is, in the statute's words, not “a true and bona fide price”.

Section 6c never defines a wash sale in its own words, resting instead on what the practice is called in the trade. Paragraph (5) of the same section uses that formula for the spoofing prohibition and then adds a parenthetical definition of the word; the wash-sale provision carries no equivalent.

Which CFTC and exchange rules cover wash trades?

Two layers sit under the statute. The CFTC's own rule is 17 CFR 1.38(a), headed "Competitive execution required; exceptions", which requires purchases and sales of futures and commodity options on or subject to a contract market's rules to be executed openly and competitively, and permits non-competitive execution only where the exchange's written rules providing for it have gone to the Commission and been approved. Paragraph (b) adds that a non-competitively executed trade has to be marked as one, in its orders and records too.

The exchange layer comes from 17 CFR 38.152. Every designated contract market has to ban abusive trading practices, and the regulation names the ones no exchange may leave out: wash trading, front-running, pre-arranged trading (bar the transactions part 38 itself permits), fraudulent trading, money passes, plus anything else the exchange judges abusive. Core Principle 2, at 17 CFR 38.150, requires the exchange to monitor and enforce those rules and to be able to detect, investigate and sanction whoever breaks them.

Three of the practices named around wash trading are worth telling apart, and the CFTC glossary separates them. Accommodation Trading is non-competitive trading usually entered into to assist somebody else's illegal trades, and the glossary's own example is a below-market sale that manufactures a short-term tax loss and is reversed later. Cross Trading is one customer's buy matched against another's sell, allowed only under the CEA, CFTC rules and exchange rules. Prearranged Trading is brokers trading on an express or implied understanding. A wash trade needs no second party at all: in 80 of the 127 trades found in Docket 25-08, one trader was on both sides himself.

What does the CFTC have to prove to call a trade a wash trade?

Two things, in sequence. First, that the trades achieved a wash result; second, that the trader intended one. The September 2025 order sets out both steps with the case law behind each.

For the result, the order quotes the three elements from Wilson v. CFTC in the Eighth Circuit in 2003, which took them from the Commission's Gilchrist decision: a purchase and a sale; one futures contract and one delivery month; one price, or close to it. All three are objective. Nothing about them asks why the trader did it.

Intent is the separate element, and the order cites Reddy v. CFTC in the Second Circuit for the proposition that section 4c needs it. The intent the order describes is an intent “to negate risk or price competition and avoid a bona fide market position”. There are two routes to it. One is prearrangement — an agreement with somebody else, which the glossary's Prearranged Trading entry treats as a violation in itself. The other, from the Commission's Three Eight Corp. and Collins decisions, is intentional structuring that reaches the same end as prearrangement without anyone having to agree to anything. Placing offsetting buy and sell orders while taking steps that raise the odds of both sides filling at one price is, in Collins, persuasive evidence of that intent.

One line from Gimbel, quoted in the order, is worth holding onto: where positions wash and the intent was to avoid bona fide trading, the motive behind that particular transaction does not rescue it. A tax reason, a reporting reason or a bookkeeping convenience does not change the analysis.

Is closing and reopening the same position a wash trade?

Hold it against the elements the September 2025 order sets out. A wash result takes a purchase and a sale, in one delivery month of one futures contract, at one price or close to it; the glossary's Wash Trading entry describes transactions that leave the trader's market position unchanged and carry no market risk. Close a position and re-enter it later at a different price and the third element is not met, and you carried market exposure in the interval.

None of the three elements measures elapsed time, and the examples in Docket 25-08 bear that out: two are under three seconds apart, one is about 56 seconds apart, and all of them sit inside the same count of 127. Timing still matters: the Commission's finding rests on the timing and structure of the orders together, and in each example the second order was placed at the price the first was already working at, so the first order filled the second.

So the question that matters to a trader is whether your own resting order is what your next order is going to trade against. A resting limit order left in the book and filled by an order you send later in the session has the shape of the examples in Docket 25-08, where the offsetting order was filled by the trader's own initial order. The intent element is what a violation needs on top of that shape, and the order's authorities read intent from prearrangement or from structuring, not from the trader's stated reason, which is the Gimbel point above.

Can two accounts with the same owner wash trade against each other?

Yes, and that is the fact pattern in a wash-sale order the CFTC settled in September 2025 against a Korean financial services firm that holds no CFTC registration. Release 9125-25, issued on 17 September 2025, describes near-simultaneous bids and offers in the same quantity of one futures contract, placed for trading accounts under a single beneficial owner and structured so that both sides would be likely to fill at one price or close to it.

One of the worked examples in the order is explicitly cross-account. At 01:30:37.238 Eastern on 31 October 2023, an order went in to sell one crude oil contract at 82.74 in one of the firm's accounts. Under three seconds later, the trader at the centre of the case placed a buy order at the same price in a different account of the same firm, and the first order filled it. The order's footnote splits the 127 wash trades it found three ways: 80 where that trader took both sides, 44 where one of his orders offset against an order from a trader on another of the firm's desks, and 3 involving his direct report.

Common ownership is what ties those together. The Commission's 2017 Copersucar consent order, cited in Docket 25-08, found a Regulation 1.38(a) violation in the structuring and transfer of positions between proprietary accounts. Separate account numbers, separate traders and separate desks did not keep the trades out of the count: all three groups in the footnote's split sit among the 127.

What does a wash trading finding cost?

The civil route is a money penalty and an order to stop. In the September 2025 settlement the firm paid a civil monetary penalty of $212,500 and agreed to cease and desist from further breaches of the statute and Regulation 1.38(a), without admitting or denying the findings. The Commission recorded that the figure already reflects a twenty percent mitigation credit for cooperation, so the penalty it considered appropriate before credit was higher. For scale, the 127 trades covered 440 crude oil contracts on NYMEX, around $33.5 million in aggregate value.

The criminal route exists as well. Under 7 U.S.C. 13(a), knowingly violating subsections (a) through (e) of section 6c — the subsections that include the wash sale prohibition — is a felony, carrying up to a $1,000,000 fine or up to ten years' imprisonment, or both, plus the costs of prosecution. That route turns on the word knowingly. The civil case has its own separate intent element, the one the order takes from Reddy.

Exchange discipline sits alongside both, because 17 CFR 38.152 obliges the market to carry its own rule against wash trading and Core Principle 2 obliges it to enforce that rule.

Is a wash trade the same as the wash sale rule on your taxes?

No. They share a name and nothing else. The wash sale rule is a tax rule about when a loss is deductible; a wash trade is a prohibited market practice. The practical difference for a futures trader is that one of them does not reach commodity futures contracts at all.

IRS Publication 550 (2025) sets the tax rule's scope under the heading "Options and futures contracts." inside its Wash Sales section: the rules apply to losses on stock and securities, and on contracts and options for acquiring or selling them, and do not apply to losses on commodity futures contracts or foreign currencies. How futures are taxed goes through that in more detail, including the straddle rules, which are separate and can still defer a loss.

What does this mean on a funded futures account?

An account here is a simulated account on live market data, and the house rule that resembles the wash-trade prohibition is the hedging rule, which exists for its own reason. Prohibited conduct does not allow opposing positions in the same instrument, whether they sit in one account or across several you hold, and the reason it gives is that one side always wins, so a payout comes from variance instead of trading. A separate entry extends it to products that move together, so a long in the E-mini against a short in the micro counts, and positions are monitored across every account you hold.

The copy trading rules say the same thing from the other direction: copies between your own accounts have to run in the same direction, because long on one and short on another at the same time is a hedge across accounts.

Read the federal material and the house rule as two separate things with one overlap. The statute reaches transactions in a commodity for future delivery that are used or usable for the purposes paragraph (1) names, and Regulation 1.38(a) reaches purchases and sales on or subject to a contract market's rules. What carries across from the CFTC's order is the shape of the conduct: two orders you control, structured so they meet each other, produce a print with no risk in it.

Frequently asked questions

Which law makes wash trading illegal in futures?

The Commodity Exchange Act, with two layers of CFTC regulation under it. 7 U.S.C. 6c(a)(1) and (2) reach any person who offers, enters into or confirms a transaction of the character of a wash sale, where it is used or could be used for the purposes paragraph (1) lists. Regulation 1.38(a) separately requires futures purchases and sales on or subject to a contract market's rules to be executed openly and competitively, and 17 CFR 38.152 obliges every designated contract market to carry a rule against wash trading.

How does the CFTC prove a wash trade?

In two steps. The Commission first shows a wash result, which the September 2025 order describes using the three elements from Wilson v. CFTC: a purchase and a sale; one futures contract and one delivery month; one price, or close to it. It then has to prove the intent as well: negating risk or price competition, and holding no bona fide position. That is what the order's authorities allow to be inferred either from prearrangement or from deliberate structuring that achieves the same result.

Can you accidentally wash trade by hitting your own resting order?

The objective elements can be met that way, since the result is a purchase and a sale in the same contract at one price. The intent element is what a violation needs on top of that, and the Commission's decisions infer intent from prearrangement or from structuring designed to make both sides fill together. The Commission also held in Gimbel that where positions wash and the intent was to avoid bona fide trading, the motive behind the particular trade does not excuse it.

What is the penalty for wash trading futures?

The settled order published in September 2025 imposed a $212,500 civil monetary penalty, after a twenty percent mitigation credit for cooperation, plus a cease-and-desist from further breaches of the statute and Regulation 1.38(a). Criminal exposure is separate: under 7 U.S.C. 13(a), knowingly violating subsections (a) through (e) of section 6c is a felony, carrying a fine of up to $1,000,000 or up to ten years' imprisonment, or both, plus prosecution costs.