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- Binance announced a new feature intended to minimize a key form of market manipulation called self-trading.
- The Self-Trade Prevention function will block the execution of orders that would result in a self-trade.
- Also known as wash trading, the tactic is when one party trade with itself to create the perception of beefed up trading volume.
Binance is launching a new function Thursday to block a key market manipulation tactic, the cryptocurrency exchange announced Tuesday.
Called the Self-Trade Prevention Function, it is aimed at clamping down on users or groups of users that trade with themselves to create the illusion of higher trading activity.
Here's how Binance described the practice, which is prohibited in its terms of use.
"Self-trading happens when a user or a group of related users trade with themselves. The same participant is on both sides of the trade, so there is no actual change in the beneficial owner of the traded asset."
The exchange did note that not all self-trading is intentional, as large traders such as liquidity providers may run multiple strategies simultaneously and end up with two of their own orders paired up.
The new feature accounts for unintentional self-trading, according to the company, as it will block the execution of orders that would result in a self-trade.
The Self-Trade Prevention Function is optional, and won't impact those who choose not to use it. It will be available to all of users of Binance's API, which allows users to connect to the company's services via programming languages to allow for automated trading. Users of the Binance site and app won't be affected.
The crypto sector has been plagued by market manipulation. According to a recent working paper from the National Bureau of Economic Research, so-called wash trading accounts for up to 70% of all transactions on non-compliant crypto exchanges. It creates a false perception of higher-than-actual liquidity, which can then generate real interest from other investors.