Insider Trading


DEFINITION of 'Insider Trading'

The buying or selling of a security by someone who has access to material, nonpublic information about the security.


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BREAKING DOWN 'Insider Trading'

Insider trading can be illegal or legal depending on when the insider makes the trade: it is illegal when the material information is still nonpublic--trading while having special knowledge is unfair to other investors who don't have access to such knowledge. Illegal insider trading therefore includes tipping others when you have any sort of nonpublic information. Directors are not the only ones who have the potential to be convicted of insider trading. People such as brokers and even family members can be guilty.

Insider trading is legal once the material information has been made public, at which time the insider has no direct advantage over other investors. The SEC, however, still requires all insiders to report all their transactions. So, as insiders have an insight into the workings of their company, it may be wise for an investor to look at these reports to see how insiders are legally trading their stock.

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  1. What is the difference between wash trading and insider trading?

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    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 >>
  3. What's the difference between insider trading and insider information?

    Insider information is the knowledge of nonpublic material about a publicly traded company that may affect the stock's price. ... Read Full Answer >>
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