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.

VIDEO

Loading the player...

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.

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. Whistleblower

    Anyone who has and reports insider knowledge of illegal activities ...
  5. Insider

    A director or senior officer of a company, as well as any person ...
  6. Insider Information

    A non-public fact regarding the plans or condition of a publicly ...
Related Articles
  1. Investing Basics

    Explaining Insider Trading

    While often associated with illegal activity, insider trading actually encompasses both illegal and legal trading of securities.
  2. Markets

    What Investors Can Learn From Insider Trading

    Some insider trading is actually legal - and can be extremely telling for investors.
  3. Bonds & Fixed Income

    Tales From Wall Street's Crypt

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

    Top 4 Most Scandalous Insider Trading Debacles

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

    Female CEOs Who Climbed The Corporate Ladder

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

    Investing Books It Pays To Read

    We provide some classic and lesser-known titles to add to your collection.
  7. 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.
  8. Options & Futures

    Going All-In: Comparing Investing And Gambling

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

    Infamous Insider Traders

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

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  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 >>
  4. How significant is asymmetric information risk?

    Asymmetric information risk is ever present in financial markets and can represent a very significant factor. Asymmetric ... Read Full Answer >>
  5. How have business ethics evolved over time?

    Business ethics refers to how ethical principles guide a business's operations. Common issues that fall under the umbrella ... Read Full Answer >>
  6. Why did the Department of Justice launch an inquiry into the sale of ImClone shares ...

    On December 28, 2001, the FDA announced that it was rejecting ImClone's new cancer drug, Erbitux. The drug represented a ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  2. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  3. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  4. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  5. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  6. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
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!