Insider trading is when someone buys or sells a publicly traded company’s stock while having important info that isn’t yet public. This information could have a big impact on an investor’s decision about whether or not to buy or sell a stock. A few people have access to the information of company. Non-public information is information that is not lawfully available to the general public.
The rules for insider trading are very tricky, and they usually change from one country to another. The definition of “insider” can be very different in each country. Some people might only think of people who work for the company and have access to the information as “insiders.” Then again, some may think people who are close to company officials are “insiders,” too.
Insider trading involves trading in a public company’s stock by someone who has non-public, material information about that stock for any reason. Insider trading can be either illegal or legal depending on when the insider makes the trade.
Examples Of Insider Trading
- In a company, the CEO tells a friend that company has negative growth this quarter. This information was not available to public. His friend sell all of his shares before the news is get public. His friend will sell all his holdings and book profit. Other investors will book losses.
- A government employee who knows about a new law. This information will help a sugar-exporting company buys shares in the company before the law gets public.
- There was a merger talked about, and a high-level employee heard it. They know how it would affect the market, so he bought the stock in his father’s account.
Insider trading is illegal and you can go to prison or pay a fine or both.