Baked In The Cake


DEFINITION of 'Baked In The Cake'

Projections, expectations and other news items that are already reflected in a security’s price. As a phrase, "baked in the cake" is used to indicate that something has already been taken into account, and that an investor just learning of the news is unlikely to be at an advantage by acting on it.

BREAKING DOWN 'Baked In The Cake'

Investors who try to profit from breaking news must answer a difficult question: How many other investors have already acted on the news? This fundamental issue is related to insider trading and asymmetric information. In order to profit from breaking news, an investor has to be one of the first to hear of it. Once a critical number of investors have traded on an earnings estimate, for example, the news will be considered baked in the cake.

Investors should be careful when it comes to what news they trade on, and where that news is coming from. The advent of the Internet has increased the availability of information, but the source and veracity of the information found on the Internet is difficult to ascertain. For example, if an investor is told material, non-public information by an employee of a company, trading that company’s shares may lead to an investigation by the SEC.

  1. Insider Trading Sanctions Act Of ...

    Legislation that allows the SEC to seek a civil penalty, of up ...
  2. Insider Buying

    The purchase of shares of stock in a corporation by someone who ...
  3. Asymmetric Information

    A situation in which one party in a transaction has more or superior ...
  4. Insider Information

    A non-public fact regarding the plans or condition of a publicly ...
  5. Material Insider Information

    Material information, about certain aspects of a company, that ...
  6. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
Related Articles
  1. Investing Basics

    The Insiders Who Fix Rates for Gold, Currencies And Libor

    The system by which benchmark rates are fixed for interest rates, currencies and gold is archaic - and, many would argue, deeply flawed.
  2. Investing

    U.S. Government Cracks Down On Insider Trading

    The FBI is taking an interest in some shady dealings in the upper echelon.
  3. Markets

    The Truth About Insider Trading

    Allowing insider trading to go unchecked could hurt confidence in the system enough to hinder the economy in general.
  4. Markets

    Infamous Insider Traders

    Check out these bizarre insider trading cases that helped define the SEC's laws against it.
  5. Investing

    Asset Manager Ethics: Rules Governing Capital Markets

    The integrity of the capital markets needs to be kept at utmost importance for all investors. This article shows how to maintain the integrity while investing.
  6. Economics

    The 5 Countries That Produce the Most Carbon Dioxide (CO2)

    Learn about the top five countries, China, the United States, India, Russia and Japan, that are the largest contributors to carbon dioxide emissions.
  7. Economics

    Explaining the Tier 1 Leverage Ratio

    The Tier 1 leverage ratio measures a bank’s core capital against its total assets.
  8. Investing Basics

    What Is Schedule 13G Used For?

    Schedule 13G is an SEC form an investor must file upon taking ownership of 5% or more of a company’s outstanding shares.
  9. Insurance

    Airbnb Insurance: Will It Cover Enough?

    If a paying guest trips over a rug in your home, breaks an ankle and sues for damages, here's how to make sure your coverage protects you.
  10. Insurance

    5 (Possibly) Costly Risks of Being an Airbnb Host

    Guests who get injured or damage your neighbor’s property are just a couple of examples of what can go wrong. Here’s how to protect yourself.
  1. What exactly is insider trading?

    An "insider" is any person who possesses at least one of the following: 1) access to valuable non-public information about ... Read Full Answer >>
  2. How often do mutual funds report their holdings?

    The Securities and Exchange Commission (SEC) requires mutual funds to report complete lists of their holdings on a quarterly ... Read Full Answer >>
  3. What is the difference between wash trading and insider trading?

    Wash trading is an illegal trading activity that artificially pumps up trading volume in a stock without the stock ever changing ... Read Full Answer >>
  4. How can I profit from monitoring open interest?

    Since markets experience asymmetric information between parties, monitor whether there is an imbalance between the open interest ... Read Full Answer >>
  5. If I write a blog post about stocks I own, is that considered insider trading?

    Writing a blog post about stocks you own is not considered insider trading. The only duty of the blogger is to disclose he ... Read Full Answer >>
  6. Why is moral hazard so prevalent in the financial services industry?

    Moral hazard tends to be prevalent in the financial services industry due to the nature of the industry, temptation and greed, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!