Insider Trading

AAA

DEFINITION of 'Insider Trading'

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

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Stop Trading On Congressional Knowledge ...

    A bipartisan bill signed into law Apr. 4, 2012 by President Barack ...
  2. SEC Form 10-K405

    A form used by the Securities and Exchange Commission (SEC) prior ...
  3. Open-Market Transaction

    An order placed by an insider, after all appropriate documentation ...
  4. Poop

    A slang term often used to describe inside information or people ...
  5. Material Insider Information

    Material information, about certain aspects of a company, that ...
  6. Bullet Dodging

    A form of option granting in which the award of options is delayed ...
Related Articles
  1. Markets

    What Investors Can Learn From Insider Trading

    Some insider trading is actually legal - and can be extremely telling for investors.
  2. Let's take look at three gory tales let loose from Wall Street's crypt.
    Bonds & Fixed Income

    Tales From Wall Street's Crypt

    Wall Street continues to attract fresh hordes of ghoulish people committing the same old crimes.
  3. Investing Basics

    Top 4 Most Scandalous Insider Trading Debacles

    Here we look at some of the landmark incidents of insider trading.
  4. Entrepreneurship

    Female CEOs Who Climbed The Corporate Ladder

    These women climbed the ladder and broke the glass ceiling.
  5. Retirement

    Investing Books It Pays To Read

    We provide some classic and lesser-known titles to add to your collection.
  6. Options & Futures

    When Insiders Buy, Should Investors Join Them?

    Insider tracking can inform your investment strategy, but it requires research and a level head. Find out what to look for.
  7. Options & Futures

    Going All-In: Comparing Investing And Gambling

    People often compare stocks to gambling, but how close are they really?
  8. Markets

    Infamous Insider Traders

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

    Why did the Department of Justice launch an inquiry into the sale of ImClone shares in 2001?

    On December 28, 2001, the FDA announced that it was rejecting ImClone's new cancer drug, Erbitux. The drug represented a major portion of ImClone's pipeline, so the company's stock took a sharp ...
  10. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center