What is Insider Trading?

Answer:
Insider trading is a type of trading that can either be legal or illegal.

First, let’s look at legal insider trading. Corporate insiders such as officers, employees, and directors can buy and sell stock in their own companies however when doing so they must report their trades to the SEC.

The illegal form of insider trading occurs amongst individuals who buy or sell a security in breach of a fiduciary duty or some other type of confidence while they have “insider” information about the security.

For example, if you own stock in a company that you work for and find out that there are significant, confidential developments that could affect the price of the stock (for better or for worse) and you act upon that knowledge by buying or selling the stock, you are guilty of insider trading. In addition, if you take that information and share it with family members urging them to act, you are also guilty of insider trading.

Insider trading is harmful to the integrity of the securities market and undermines investor confidence.


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