Wash Sale

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.