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. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  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. Fintech

    Fintech is a portmanteau of financial technology that describes ...
RELATED FAQS
  1. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

    The Federal Reserve Board and the Financial Industry Regulatory Authority (FINRA) regulate buying on margin to a greater ... Read Full Answer >>
  2. What financial regulation exist to control the secondary market?

    The secondary market, most commonly referred to as the stock market, is largely built on self-regulating exchanges that also ... Read Full Answer >>
  3. Why is the Vortex Indicator (VI) important for traders and analysts?

    Doug Siepman and Etienne Botes developed the vortex indicator to anticipate reversals in price trends. They believed that ... Read Full Answer >>
  4. Why is purchasing stocks on margin considered more risky than traditional investing?

    Buying on margin involves borrowing money from a broker to purchase stock. A margin account increases your purchasing power ... Read Full Answer >>
  5. What is the difference between positive correlation and inverse correlation?

    In the field of statistics, positive correlation describes the relationship between two variables which change together, ... Read Full Answer >>
  6. What are my options when I get a margin call?

    The two options available to an investor when he receives a margin call are to deposit additional funds to his trading account ... Read Full Answer >>
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. Investing Basics

    Market Simulators: How To Outperform Warren Buffett

    That moment when you realize you just booked $108 million dollars in less than an hour: it puts butterflies in your stomach.
  8. Trading Strategies

    How To Best Analyze Relative Strength

    Relative strength indicators measure performance between similar instruments, uncovering opportunities that can translate into reliable profits.
  9. Active Trading Fundamentals

    Where And How Should You Make Your First Trade?

    New traders should enter markets that offer the greatest opportunity for learning their craft while keeping risk at a minimum.
  10. Trading Strategies

    High-Frequency Trading Regulations

    Current regulations on high-frequency trading, and possible future ones. How some people think high-frequency trading should be regulated or illegal.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center