Insider Trading

Insider trading is the practice of trading company stocks or securities based on material obtained from nonpublic information regarding the aforementioned company.

This is a form of market abuse and many countries have regulations and laws in place that are designed to curb this practice.

Insider trading is illegal for obvious reasons, giving specific investors access to information that the rest of the public does not have.

Any publicly traded company adheres to regulations that no individuals are privy to insider information that govern their decision making.

Utilizing this information is simply not fair to other investors who lack such resources, which of course opens the potential for sizable investments from parties with more information.

Insider trading varies in frequency, regulations, and penalty based on country.

In the United States or Europe there are numerous laws against this practice.

Insider Trading Explained

Insider trading covers not only insiders themselves but also any persons related to them, such as brokers, associates, and even family members.

Many jurisdictions require that such trading be reported so that the transactions can be monitored.

In the US and many other jurisdictions, trading conducted by corporate officers, key employees, directors, or significant shareholders must be reported to the regulator or publicly disclosed,

In the US and Europe, not all trading using non-public information is considered insider trading.

It is impossible to prevent basic types of information from being transmitted, and for the most part small slips in information are not seen as problematic.

This does not pertain to more complex forms of information such as mergers, acquisitions, etc. which are held to higher standards by regulators.