DEFINITION of 'Circular Trading'

A fraudulent trading scheme where sell orders are entered by a broker who knows that offsetting buy orders, the same number of shares at the same time and at the same price, either have been or will be entered.

BREAKING DOWN 'Circular Trading'

These trades do not represent a real change in the beneficial ownership of the security.

RELATED TERMS
  1. Bracketed Buy Order

    A buy order that is accompanied by a sell limit order above the ...
  2. Bracketed Sell Order

    A sell order on a short sale that is accompanied (or "bracketed") ...
  3. Closing Offset (CO) Order

    A limit order that allows the purchase or sale of a security ...
  4. Cross Trade

    A practice where buy and sell orders for the same stock are offset ...
  5. Executing Broker

    The broker or dealer that finalizes and processes an order on ...
  6. Sweep-To-Fill Order

    A type of market order in which the broker splits an order into ...
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RELATED FAQS
  1. Why can't I enter two sell orders on the same stock?

    To answer this question, let's look at a few different situations. You bought a stock for $10 but want to be able to protect ... Read Answer >>
  2. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
  3. What is the difference between a stop and a market order?

    Learn about market orders and stop orders, how they are used and executed, and the main difference between stop orders and ... Read Answer >>
  4. How do I place a limit order online?

    Learn how a limit order is placed, the types of stocks it is most useful for and the specifications placed with it to suit ... Read Answer >>
  5. I want to buy a stock at $30, sell when it reaches $35, don't want to hang on to ...

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  6. Why do limit orders cost more than market orders?

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