Fictitious Trade

AAA

DEFINITION of 'Fictitious Trade'

1) A trade that is booked with an execution date far in the future, and is adjusted to include the correct settlement and trade date when the transaction is completed. A fictitious trade is used in the processing of a securities transaction as a form of placeholder, and is found when open dates or rates are being used.


2) A securities order used to affect the price of a security, but which does not result in shares being competitively bid for and no real change in ownership. Wash sales and matched orders are a type of fictitious trade. A fictitious trade is designed to give the impression that the market is moving in a certain direction, when in fact it is being manipulated by a broker.

INVESTOPEDIA EXPLAINS 'Fictitious Trade'

For example, two companies enter into a series of ongoing transactions whose values are based on an interest rate set each week. Because the interest rate can change from week to week, an open execution date is used for the transaction until the interest rate is announced. Two transactions are recorded. The first is a cash transaction with a settlement date the same as the trade date; the second transaction has the same trade date but a settlement date several weeks later. Each week, the second transaction is updated to include the correct interest rate and settlement date.

RELATED TERMS
  1. Transaction

    1. An agreement between a buyer and a seller to exchange goods, ...
  2. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  3. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  4. Broker

    1. An individual or firm that charges a fee or commission for ...
  5. Settlement Period

    The period of time between the settlement date and the transaction ...
  6. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
Related Articles
  1. Insurance

    Ancient Accounting Systems

    Learn how accounting evolved to keep records of increasingly complex transactions and civilizations.
  2. Investing Basics

    Principal Trading and Agency Trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on and find out!
  3. Investing Basics

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  4. Options & Futures

    Direct Access Trading Systems

    DATs can dramatically speed up order execution - find out how this system gives novice traders an edge.
  5. Markets

    Infamous Insider Traders

    Check out these bizarre insider trading cases that helped define the SEC's laws against it.
  6. Options & Futures

    Can Insiders Help You Make Better Trades?

    Find out why the trading activity of owners and executives can be a valuable trade-confirmation tool.
  7. Trading Strategies

    Top Day Trading Instruments

    Day trading is an intense and often appealing activity. Investopedia provides the list of top financial instruments for day trading.
  8. Mutual Funds & ETFs

    ETFs Characteristics for Short-Term Trading

    Not all ETFs fit the short-term trading scenario. Investopedia tells you the main characteristics to shortlist ETFs for the best trading fit.
  9. Trading Strategies

    Day Trading: Top Scenarios To Take Profits

    Three ways to take profits while day trading, based on price movement and what the asset is doing that day.
  10. Brokers

    How Brokerage Fees Work

    What you need to know about fees when choosing between a full service and discount broker.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center