What is Insider Trading?
Insider trading is an illegal practice of a company's stocks by people who have access to nonpublic information for making investments with an objective to attain wealth. Insider trading can take place in trading in stocks, bonds, or any investment instruments through illegal practices.
If such practices come across to authorities, strict and unkind consequences are 'borne' by the insider. It can take place by key employees or company executives who are involved with the strategic information about the company in order to take advantage of trading in the company's securities.
Examples of insider trading cases that have been brought by the SEC are cases against:
- Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments.
- Friends, business associates, family members, and other "tippees" of such officers, directors, and employees, who traded the securities after receiving such information.
- Employees of law, banking, brokerage, and printing firms who traded based on information they obtained in connection with providing services to the corporation whose securities they traded.
- Government employees who traded based on confidential information they learned because of their employment with the government.
- Political intelligence consultants who may tip or trade based on material, nonpublic information they obtain from government employees.
- Other persons who misappropriated, and took advantage of, confidential information from their employers, family, friends, and others.
You shouldn't always depend on any tips and news from any sources. If you want to make your trading profitable, learn the basics and develop your experience by understanding the market structure and its trend. This is the fair and right way to see returns on your investment in the stock market.