Goodies Investing Investing 101

What Is Insider Trading

Insider trading is defined as trading of any financial securities like bonds, stocks and options of a public company by an insider. An insider may be a person who has access to company’s non-public information or owns stock more than 10% of firm’s equity.

This practice isn’t recognised as legal in most of the countries as it is an unfair method due to the fact that other investors are unable to make use of the non-public information giving them a tremendous advantage over other traders.

Insider Trading does not mean only people directly employed to company like company’s director and senior officials are considered as insiders. Any person with an access to undisclosed information and making use of the same for trading is called insider, the act is called insider trading and is liable for further actions by SEC. It includes family members, friends, relatives or even a stranger whom an employee revealed the information. As insider trading undermines the confidence of investor, SEC tries it best to make sure that all illegal insider trading attempts are detected and prosecuted.

Although it sounds as completely illegal but this is not always true. In some scenarios insider trading can also be considered legal. An insider can perform legal trading transactions of their own companies, if the transactions are registered with SEC and filed in advance.

The rules for insider trading varies from country to country and the clauses are different as well. It is explicitly considered as illegal.

 

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