Insider trading is the illegal practice of buying or selling securities based on non-public, material information about a company. This information is typically known only to company insiders, such as executives, employees, or others with privileged access to the company’s confidential data.
image_here
Insider trading undermines market integrity and fairness.
When individuals with access to non-public information trade on that information before it is made public, they can profit unfairly at the expense of other investors. This type of trading is prohibited because it gives certain individuals an advantage over others, distorting the market’s ability to operate efficiently.
Insider trading laws are enforced to maintain a level playing field, ensuring that all investors have access to the same information when making trading decisions. Legal insider trading occurs when insiders buy or sell stocks based on publicly available information or during certain periods when trading is permitted by the company’s rules.
Short example:
Suppose an executive at a pharmaceutical company learns that their company’s new drug has been approved by regulators before the public announcement.
The executive buys shares of the company based on this non-public information.
Once the news becomes public, the stock price rises, and the executive sells their shares for a profit, taking advantage of information that other investors didn’t have access to.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.